PRIVATE  LIBRARY 


— OF— 


J.  S.  Leonhardt,  M.  D. 


JVo. 


POLITICAL  ECONOMY. 


SOME  LEADING  PRINCIPLES 


POLITICAL  ECONOMY 


NEWLY  EXPOUNDED. 


BY 


J.  E.  CAIRNES,  M.A., 

EMERITUS  PKOFESeOR  OF  POLITIOAI,  ECONOMY  IN  UNIVERSITY  CnLLEGE.  LONDON. 


NEW    YORK: 
HARPER    &     BROTHERS,    PUBLISHERS, 

FUANKMN      SQUARE. 

18  74. 


PREFACE. 


Though  the  following  work  is  an  attempt  to  recast  some 
considerable  portion  of  Political  Economy,  I  should  be  sorry 
it  were  regarded  as  in  any  sense  antagonistic  in  its  attitude  to- 
ward the  science  built  up  by  the  labors  of  Adam  Smith,  Mal- 
thus,  Ricardo,  and  Mill.  On  the  contrary,  m}^  hope  is  that  it 
will — should  its  reasonings  find  acceptance  —  strengthen,  in 
some  sensible  degree,  and  add  consistence  to  that  fabric.  As 
regards  those  assumptions  respecting  human  character  and  the 
physical  conditions  of  external  nature  which  constitute  the  ul- 
timate premises  of  economic  science,  the  position  I  have  taken 
is  identical  with  that  of  the  four  great  writers  I  have  named ; 
and  I  have  endeavored  also  to  follow  the  method  of  combined 
deduction  and  verification  by  comparison  with  facts,  which  was 
theirs,  and  which  is,  as  I  believe,  the  only  fruitful,  or  indeed 
possible  method  in  economic  inquiry.  ISTor  do  the  final  con- 
clusions which  T  have  reached  differ  very  widely  on  any  im- 
portant points  from  those  at  which  they  had  arrived.  The 
points  on  which  I  have  ventured  to  join  issue  with  them  are 
what,  in  Bacon's  language,  may  be  called  the  axiomata  media 
of  the  science — those  intermediate  principles  by  means  of  which 
the  detailed  results  are  connected  with  the  higher  causes  which 
produce  them.  If  I  have  not  deceived  myself,  tliere  is  in  this 
portion  of  Political  Economy,  as  at  present  generally  received, 
no  small  proportion  of  faulty  material ;  and  the  present  work 
may  be  regarded  as  an  attempt,  so  far  as  it  goes,  to  replace  this 
element  of  weakness  with  matter  better  fitted  to  endure  the 
strain  of  modern  criticism. 

The  nature  of  the  undertakino-  has  brousrht  me,  much  oft- 
ener  than  I  could  have  wished,  into  collision  with  more  than 
one  living  writer  for  whose  abilities  and  acquirements  I  feel 

1 


20G4721 


2  PREFACE. 

high  respect,  and  with  whose  practical  aims  I  not  unfrequent- 
\y  strongly  sympathize ;  and  in  particular  I  have  been  com- 
pelled in  several  parts  of  the  book  to  express  my  strong  dis- 
sent from  some  of  the  views  of  my  friend  Mr.  W.  T.  Thornton. 
Mr.  Thornton,  in  his  work  on  "Labor,"  has  contributed  much, 
for  which  economists  will  be  grateful,  to  the  elucidation  of  the 
relations  between  labor  and  capital  in  this  country ;  but  he 
has  also  taken  up  certain  theoretic  positions  which  it  seems 
to  me  are  fundamentally  erroneous.  When  my  path  has  lain 
across  these,  I  have  not  hesitated  to  challenge  them,  using 
here  the  same  freedom  which  Mr.  Thornton  has  himself  em- 
ployed when  criticising  the  views  of  preceding  writers.  I 
trust  that  I  have  also  profited  by  the  example  he  has  set  me 
of  courtesy  toward  opponents. 

Though  the  main  purpose  of  the  book  is,  as  I  have  already 
intimated,  to  aid  the  improvement  of  economic  theory,  I 
have  nevertheless  embraced  every  opportunity  that  offered  of 
bringing  theoretic  doctrines  into  comparison  with  the  facts 
presented  by  modern  industry  and  commerce.  I  have  in  this 
way  been  led  to  examine  the  power  and  pretensions  of  Trades- 
Unions,  the  efficacy  of  Strikes,  and  other  practical  questions 
involved  in  the  relations  of  labor  and  capital;  and,  in  the 
portion  of  the  book  devoted  to  International  Trade,  I  have, 
with  the  same  view,  considered  in  some  detail  the  present 
position  of  the  external  trade  of  the  United  States,  as  well  as 
the  system  of  Protection  which,  in  defiance  alike  of  theory 
and  experience,  that  country  has  so  strangely  adopted, 

I  can  not  conclude  these  remarks  without  once  again  grate- 
fully acknowledging  my  deep  obligations  to  my  friend  Pro- 
fessor Nesbitt,  who  has,  both  by  supervision  of  the  work  while 
in  progress,  and  by  correction  of  the  proofs  as  it  passed  through 
the  press,  very  materially  contributed  to  its  now  at  length  be- 
ing brought  to  a  close. 

J.  E.  Cairnes. 

KiDiiRooK  I'AitK  Road,  S.E.,  March,  1874. 


CONTENTS. 


PART  I— VALUE. 

CHAPTER  I. 

PRELIMINARY. 

Page 

§  1.  Meaning  of  Value 11 

Value  and  price 13 

"A  sum  of  values" 13 

When  a  change  in  exchanging  relations  is  described  as  a  rise  or  fall 
of  commodity  A,  rather  than  as  a  fall  or  rise  of  commodity  B,  what 

is  meant  ? 13 

§  2,  Three  problems  concerning  Value '. 14 

I.  Conditions  essential  to  the  existence  of  value 14 

II.  Causes  which  determine  "  market  values  " 14 

III.  Causes  which  determine  "normal  values " 14 

§  3.  Problem  I. — Conditions  essential  to  the  existence  of  value 14 

§  4.  Relation  of  value  to  utility.— Professor  Jevons's  theory  examined 16 

CHAPTER  II. 

SUPPLY   AND   DEMAND. 

§  1.  Fundamental  truth  in  connection  with  Supply  and  Demand 23 

§  3.  Analysis  of  the  phenomena 23 

Supply  and  Demand  strictly  analogous  conceptions 26 

Mr.  Mill's  criticism  on  this  point  unfounded 26 

§3.  Demand,  as  "quantity  demanded,"  occasionally  a  convenient,  but  not 

the  proper  sense  of  the  term 27 

§  4.  Supply  and  Demand,  as  aggregates,  are  strictly  interdependent  phenom- 
ena, and  increase  or  diminish  together 30 

§  5.  Similarly,  Production  and  Consumption  are  interdependent  phenomena.  31 
This  doctrine  not  irreconcilable  with  the  existence  of  an  idle  rich  class 

who  are  consumers  merely 33 

Case  of  foreign  residents  engaged  in  no  industry,  but  simply  expend- 
ing and  consuming '. 35 

§  6.  Sup])ly  and  Demand,  as  related  to  particular  commodities 36 

In  this  sense  not  interdependent  phenomena:  either  may  increase  or 

diminish  irrespective  of  the  other 36 

What  is  meant  by  the  equality  or  inequality  of  Supply  and  Demand '?. .  37 

§  7.  The  supply  of  a  commodity  tends  to  adapt  itself  to  the  demand  at  the 

normal  price 41 

CHAPTER  III. 

NORMAL    VALUE. 

§  1.  Nature  of  Normal  Value 43 

§  2.  Current  theories,  which  confine  normal  value  to  exchanges  governed  by 

cost  of  production,  too  narrow '. 45 

^Ir.  Mill's  docrinc  of  Cost  of  Production 46 

§  3.  Criticism  of  the  received  theory 48 

§  4.  Examples  of  practical  errors  resulting  from  the  received  view 54 


4  CONTENTS. 

Pagk 

§  5.  Statement  of  the  theory  of  Cost  of  Production  as  governinsf  normal  value  57 
Effective  competition  an  indispensable  condition  in  order  to  the  action 

of  the  principle  of  cost 58 

Extent  to  which  effective  competition  is  actually  realized  in  hidustrial 

communities 60 

Non-competing  industrial  groups 66 

Complication  of  results 69 

Nature  of  the  law  of  "  cost " 73 

§  6.  Analysis  and  characterization  of  the  constituents  of  "  cost " 73 

The  labor  element  of  "  cost" 75 

Relation  of  skill  to  "cost"  and  to  "value" 76 

Nature  of  "abstinence" 80 

How  far  does  "abstinence"  stand  in  need  of  reward ? 81 

The  sacrifices  involved  in  cost  of  production  not  necessarily  under- 
gone by  distinct  persons 83 

In  computing  cost  of  production,  it  is  the  average  sacrifice  that  is  to 

be  taken  account  of 85 

§  7.  Normal  value  as  determined  by  Reciprocal  Demand 87 

Nature  of  Reciprocal  Demand  as  between  nations  and  non-competing 

industrial  groups 91 

Difference  in  the  modes  of  action  of  Cost  of  Production  and  of  Recip- 
rocal Demand 93 

Probable  effect  of  improved  popular  education  on  Reciprocal  Demand, 

and,  through  Reciprocal  Demand,  on  normal  values,  in  this  country.  95 

CHAPTER  IV. 

MARKET    VALUE 

§  1.  Market  Value,  amenable  to  law 97 

§  2.  Adam  Smith's  doctrine  of  Market  Price 98 

§  3.  Mr.  Mill's  doctrine 101 

§  4.  Proposed  theory  of  Market  Price  in  wholesale  markets 104 

Play  of  foices  in  the  market 106 

"Prii]ier  market  price" 107 

Fumtion  of  Speculators , 109 

Subordinate  importance  of  the  theory 110 

§  5.  Prices  in  retail  markets 113 

Capital  in  retail  trade  excessive 114 

Co-operative  competition 115 

CHAPTER  V. 

ON   SOME   DERIVATIVE   LAWS   OF   VALUE. 

§  1.  Character  of  the  industry  of  new  communities 117 

Action  of  the  law  of  "  diminishing  ijroductiveuess  " 118 

S  2.  Course  of  price  in  meat  and  timber 119 

§  3.  Course  of  price  in  the  staple  food 133 

§  4.  Reciprocal  movements  in  tillage  and  pasture 127 

Effects  on  the  progress  of  rent 127 

§  5.  Course  of  price  in  accessory  products 128 

§  6.  Adam  Smith's  insight 130 

§  7.  Course  of  price  in  mineral  i)roducts 131 

§8.       •"  "        in  manufactures 132 

"  "        in  coarse  and  relint'd  nnmufactures 135 

§  9.  Derivative  laws  in  fluctuations  of  the  market 135 

§  10.  Laws  of  fluctuation  as  affecting  manufactures 137 

§  11.        "  "  as  affecting  raw  ])roducts 141 

"  "  as  affecting  the  sia])le  food  of  a  people 142 

§  12.  Market  fluctuations  differ  in  intensity  and  in  duration 145 

In  vegetable  pnjduets  more  intense 144 

In  animal  products  of  longer  duration 144 

Fish  and  game 145 


CONTENTS. 


PAET  II.— LxiBOR  AND  CAPITAL. 

CHAPTER  I. 

the  rate  of  wages. 

Page 
§  1.  The  problem  of  relative  wages  solved  by  the  theory  of  value,  but  not  that 

of  positive  wages 149 

§  2.  Reasons  for  treating  apart  labor  and  commodities  as  subjects  of  ex- 
change value. . .  ^ 150 

§  3.  Are  we  justified  iu  speaking  of  a  " general"  rate  of  wages ?    Mr.  Longe's 

objection  considered 154 

§  4.  Present  state  of  the  controversy 157 

§  5.  The  Wages-fund  theory 159 

§  6.  Positions  taken  by  the  disputants  on  either  side 161 

§  7.  Mr.  Longe's  doctrine  that  "  the  demand  for  commodities  determines  the 

quantity  of  wealth  spent  in  the  wages  of  laborers  "  considered 162 

§  8.  Exposition  of  the  Wages-fund  theory 167 

Causes  determining  the  amount  of  investment  .    168 

Three  leading  constituents  of  capital — Fixed  Capital,  Raw  Material,  and 
Wages -fund.     Causes  determining  the  proportions  in  which  they 

combine 170 

Mode  in  which  the  supply  of  labor  afiects  the  amount  of  the  Wages-fund  173 

§  9.  Law  of  the  growth  of  of  the  Wages-fund 174 

Social  consequences 177 

§  10.  Industrial  crises — effects  on  the  Wages-fund 178 

§  11.  Mr.  Thornton's  objections  to  the  Wages-fund  doctilne  considered 180 

CHAPTER  II. 

DEMAND  FOR   COMMODITIES. 

§  1.  Two  conditions  of  Demand  for  Commodities 189 

1.  Where,  aggregate  expenditure  remaining  the  same,  a  change  takes 
place  in  the  direction  of  demand 189 

2.  Where  aggregate  expenditure,  and  therefore  the  aggregate  demand    ' 
for  commodities,  undergoes  increase 189 

8  2.  Action  on  the  Wages-fund  of  changes  in  the  direction  of  the  demand  for 

commodities 190 

Where  competition  is  effective 190 

Where  competition  is  not  effective 191 

International  effects  produced  by  changes  in  the  direction  of  demand .  193 
§  8.  Action  on  the  Wages-fund  of  an  increase  in  the  aggregate  demand  for 

commodities 194 

§  4.  Summary  of  results 199 

§  5.  Wages  and  prices 200 

Incomplete  theories 201 

§  6.  Statement  of  the  relation  between  wages  and  prices 203 

Corresponding  movements 204 

§  7.  I.  Case  of  an  increase  in  wages  from  a  growth  of  capital  more  rapid  than 

of  population,  while  the  productiveness  of  industry  remains  unaltered  205 
§  8.  II.  Case  of  an  increase  of  wages  due  to  improved  industrial  processes,  or 

to  an  extension  of  trade 206 

§  9.  III.  Case  of  an  increase  of  wages  due  to  an  enlarged  supply  of  money 207 

Principle  connecting  wages  and  prices 209 

§  10.  Monetary  paradox 210 


6  CONTENTS. 

CHAPTER  III. 

TRADES-UNIONISM. — NO.  I. 

Page 
§  1.  Question  of  the  limitation  of  the  Wages-fund  fundamental  in  Trades- 
Union  eontrovei-sy 214 

§  3.  Economic  limits  of  the  Wages-fund 215 

Law  of  the  tendency  of  profits  to  a  minimum 216 

Bearhig  of  this  on  the  question  of  limitation 217 

§  3.  The  character  ofthe  limitation  not  such  as  to  exclude  Trades-Union  action  219 

Proper  province  for  this  action 224 

Practical  utility  of  strikes  depends  upon  the  ability  of  leaders  to  dis- 
criminate states  ofthe  market 225 

How  far  is  this  ability  likely  to  be  acquired 226 

§  4.  The  foregoing  conclusions  applicable  to  countries  in  which  profits  are 

above  the  minimum;  for  example,  the  United  States 230 

§  5.  Recent  advance  in  wages,  how  far  due  to  Trades-Union  action 231 

§  6.  Power  of  capitalists  by  combination  to  control  the  labor  market 233 

§  7.  Relation  of  wages  to  profits 235 

Mr.  Brassey's  doctrine  as  to  the  uniform  cost  of  labor  examined 238 

CHAPTER  IV. 

TRADES-UNIONISM. — NO.  II. 

§  1.  Three  methods  by  which  Trades-Unions  may  operate  on  the  rate  of  wages  242 

§  2.  Their  mode  of  acting  on  the  supply  of  labor 243 

Efiectual  for  its  immediate  purpose;  but  incapable  of  being  made  a 
means  for  the  social  advancement  of  laborers 244 

§  3.  Mode  of  acting  on  the  rate  of  wages  by  "  making  work  " 341) 

Theoretical  grounds  of  this  mode  of  action  plausible,  but  fallacious. . .  249 

Mr.  Thornton's  view  stated  and  examined 349 

Notion  that  work  and  wages  are  convertible  expressions 254 

Practical  refutation 355 

Notion  that  the  quantity  of  work  to  be  done  at  any  given  time  is  fixed  256 

Social  work  indefinite 257 

True  and  only  limit  to  the  employment  of  labor 257 

§  4.  Examples  of  Trades-Union  rules  for  "  making  worlc" 358 

Analysis  and  characterization  of  such  rules 260 

Principle  of  this  policy  not  confined  to  Trades-Unions 261 

CHAPTER  V. 

PRACTICAL   DEDUCTIONS   FROM  THE  FOREGOING  PRINCIPLES. 

§  1.  Socialistic  objections  to  distribution  determined  by  economic  principles.  203 

§  3.  Maxims  of  distributive  justice 263 

"  To  each  according  to  his  wants  " 264 

"To  each  according  to  his  works" 264 

"To  each  according  to  his  sacrifice" 264 

§  3.  Examination  of  their  njiijlicability  to  actual  problems 266 

§  4.  Distribution  of  wealth  under  the  action  of  economic  laws,  how  far  co- 
incident with  tiie  principles  of  abstract  justice 268 

§  5.  Our  present  system  of  industry  defensible  on  utilitarian  grounds 270 

Need  of  a  large  accumulated  capital 271 

Failure  of  socialist  sdiemes  to  jtrovidc  for  this 272 

Prospects  offered  to  the  laljoring  classes  under  the  present  regime  of 

industry 273 

ProducUveness  of  inilust  i-y,  liow  related  to  i)rofits  and  wages 275 

Coincidence  of  a  ^;iigiit  inciense,  in  tlie  rates  ol' wages  and  profits  with 

a  greatly  increased  i)r()ductiveness  of  general  industry  explained 277 

The  i)henomenon,  in  wiiat  way  related  to  rent 279 

Discouraging  result  of  this  aspect  of  the  case 280 


S« 


CONTENTS.  7 

Page 

§  7.  No  considerable  improvement  in  the  laborer's  condition  possible  while 

lie  remains  a  mere  recipient  of  wages 284 

Recognition  of  this  trutli  by  socialistic  writers;  but  their  expedients 

for  meeting  the  difficulty  indefensible 285 

8  8.  Practical  problem :  To  attain  the  socialistic  end  by  means  compatible 

with  existing  institutions 287 

Difficulties  moral  and  intellectual,  not  physical 287 

§  9.  Co-operation  offers  the  sole  escape  from  a  hopeless  position 289 

Present  prospects  of  co-operation 290 

§  10.  An  objection  answered 291 


PART  III.— INTERNATIONAL  TRADE. 

CHAPTER  I. 

DOCTRINE   OF   COMPARATIVE  COST. 

§  1.  Arc  there  grounds  for  a  separate  theory  of /«ter«a<ioPia^ trade? 297 

Rationale  of  trade  in  general 298 

Special  province  of  International  trade 300 

Impediments  to  the  movement  of  capital  and  labor  between  nations. . .  302 

§  2.  Character  and  relative  importance  of  such  impediments 305 

§  3.  Development  of  the  doctrine  of  comparative  cost  of  production 307 

"Comparative  cost"  to  be  understood  as  measured  by  the  sacrifices 

undergone,  not  by  the  wages  and  profits  received,  by  producers 310 

Costs  compared  are  the  respective  costs  in  each  country  of  the  ex- 
changed commodities,  not  the  costs  of  the  same  commodity  in  the 

exchanging  countries 312 

Examples  of  the  practical  working  of  the  principle  in  the  trade  of  the 

world 312 

Verification  of  abstract  theory  in  the  occurrences  following  the  gold 

discoveries 315 

Trade  between  New  York  and  Barbados 316 

Character  of  a  large  portion  of  International  trade  obscured  by  errone- 
ous conceptions  of  cost 317 

CHAPTER  II. 

INTERNATIONAL   TRADE   IN   ITS  RELATION   TO   THE   RATE   OF  WAGES. 

§  1.  Theory  of  International  trade  as  expounded  by  Ricardo  and  Mill,  not  in- 
vulnerable   319 

The  proximate  conditions  of  trade  are  prices,  not  cost 319 

"  Every  transaction  in  commerce  is  an  independent  transaction  " 320 

Reply  from  Ricardo's  stand-point 321 

Criticism  of  this  reply 322 

§  2.  Proposed  modification  of  the  theory  of  International  trade 323 

§  3.  Prevalent  opinion  as  to  the  connection  between  wages  and  International 

trade 324 

In  conflict  witli  the  received  economic  doctrine  as  expounded  by  Ricardo  325 

Grounds  of  tlie  popular  view,  superficial  and  untenable 32(5 

§  4.  Illustrative  examples  showing  the  eflfects  of  partial  movements  in  wages 

on  International  trade " . .  327 

Sugar  cultivatit)n  in  Queensland 329 

Effects  on  tlie  external  trade  of  England  of  a  fall  of  wages  in  some  lead- 
ing branch  of  manutacture,  discussed 330 

§  5.  Nature  of  the  connection  between  qeneral  wages  and  foreign  trade 334 

Illustration  offered  by  Australiai'i  experience 335 

Hypotlietical  illustration  showing  tlie  nature  of  the  connection  as  it 

would  be  developed  in  given  cinumstances  in  England 337 

General  wages  and  foreign  trade  connected  as  co-ordinate  effects  of  a 
common  cause 339 


8  CONTENTS. 

CHAPTER  III. 

international  values. 

Page 

§  1.  Statement  of  the  problem 343 

§  2.  Doctrine  of  international  values  as  set  forth  in  the  received  text-books, 
not  reconcilable  with  that  of  Cost  of  Production,  to  be  found  in  the 

same  authorities 343 

But  reconcilable  with  the  view  of  cost  here  contended  for 344 

§  3.  Practical  criterion  showing  the  relation  of  exchange  value  to  cost 345 

Application  of  this  criterion  to  the  circumstances  of  the  leading  com- 
mercial countries 347 

§4.  Functions  respectively  of  Reciprocal  Demand  and  of  Cost  of  Production 

in  relation  to  International  values 348 

Varieties  of  industrial  monopoly  in  International  trade — strict  and 

qualified,  one-sided  and  reciprocal 349 

§  5.  Conditions  of  commercial  equilibrium 353 

§  6.  Effects  of  international  lending  and  borrowing  on  the  commercial  equi- 
librium   359 

§  7.  The  foregoing  principles  illustrated  by  the  course  of  the  United  States 

external  trade  since  1860 364 

§  8.  Present  state  and  immediate  prospects  of  that  trade 367 

CHAPTER  IV. 

FREE-TRADE  AND  PROTECTION. 

§  1.  Present  state  of  the  controversy 375 

§  2.  Protection,  an  outgrowth  of  the  Balance  of  Trade  system 376 

Either  system,  consistently  carried  out,  fatal  to  International  trade 377 

§  3.  M.  Alby's  statement  of  the  protectionist  theory 379 

Criticism  of  M.  Alby's  statement 380 

§4.  Practical  issue  taken  in  the  United  States — the  cost  of  production  of 

coniniodilies 382 

The  criterion  proves  too  much 383 

And,  rightly  understood,  refutes  the  protectionist  argument 384 

§  5.  Alleged  inability  of  the  United  States  to  compete  with  the  cheap  labor 

of  Europe  examined 386 

§  6.  Examination  of  a  ten  years'  experiment  of  Protection  in  the  United  States  388 

Difficulty  of  interpreting  an  industrial  experiment 388 

Complication  of  results  only  to  be  unraveled  by  the  deductive  method  389 

Mr.  Wells's  contributions  to  the  investigation 391 

Lesson  of  the  experiment 395 

§  7.  Political  argument  in  favor  of  Protection,  as  ilivoring  variety  in  industry  395 

Unfounded  in  the  domain  of  "extractive  industry " 397 

And  not  better  founded  in  that  of  manufactures 399 

Demoralizing  effects  of  a  protective  regime 402 

CHAPTER  V. 

ON  SOME   MINOR  TOPICS. 

§  1.  Nature  of  a  country's  interest  in  the  scale  of  its  general  prices 407 

Maxim  tliat  "gold  is  of  the  same  value  all  the  world  over"  examined.  408 
A  nation  is  interested  not  in  having  its  prices  high,  but  in  having  its 
gokl  cheap " 410 

§  2.  Attempts  to  measure  tlie  gain  on  foreign  trade 415 

The  problem  insoluble  . " 418 


VALUE. 


SOME  LEADING  PRINCIPLES 


POLITICAL   ECONOMY. 


PA.RT  I, 

VALUE. 


CHAPTER    I 

PRELIMINART. 


§  1.  The  sense  proper  to  value  in  economic  discussion  may, 
I  think,  be  said  to  be  universally  agreed  upon  by  economists, 
and  I  may,  therefore,  at  once  define  it  as  expressing  the  ratio 
in  which  commodities  in  open  market  are  exchanged  against 
each  other.  This,  as  every  one  is  aware,  is  not  the  only  or 
perhaps  the  most  common  meaning  borne  by  "value"  in  gen- 
eral discourse,  and  hence  occurs  a  source  of  ambiguity  which 
some  writers  have  proposed  to  avoid  by  eliminating  the  term 
altogether  from  the  nomenclature  of  Political  Economy.  Pro- 
fessor Jevons,  for  example,  would  substitute  for  "  value  "  the 
expression  of  "ratio  of  exchange."  Something,  it  is  possible, 
might  be  gained  in  point  of  clearness  by  the  substitution;  but, 
on  the  other  hand,  the  term  "value  "  has  become  far  too  deep- 
ly rooted  in  the  ordinary  modes  of  economic  thought  to  be 
easily  displaced;  nor,  for  my  part,  do  I  think  this  extreme 
course  needed ;  for,  though  no  doubt  there  is  the  danger — 
associated  as  the  word  is  with  other  meanings,  and  more  par- 


12  VALUE. 

ticularly  with  the  idea  of  "utility" — of  sliding  in  argumenta- 
tive discussion  from  the  scientific  into  some  other  sense,  this 
may,  to  a  very  great  extent,  if  not  entirely,  be  precluded  by 
the  simple  contrivance  of  qualifying  the  term,  in  all  doubtful 
contexts,  with  the  prefix  "  exchange."  "  Exchange  value  "  in- 
volves little  departure  from  ordinary  usage,  and  can  hardly 
fail  to  remind  the  reader,  where  this  is  necessary,  of  the  spe- 
cial and  limited  sense  in  which  the  word  is  employed. 

Value  expressing  a  ratio  or  proportion  existing  between  the 
commodities  exchanged,  it  follows,  of  course,  as  is  explained  in 
all  treatises,  that  a  general  rise  or  a  general  fall  of  values  is  an 
impossibility,  or,  rather,  a  contradiction  in  terms.  If  A  rise  in 
relation  to  B,  B  must  fall  in  relation  to  A.  A  and  B  can  not 
both  rise  or  both  fall  at  the  same  time  in  relation  to  each  oth- 
er ;  and  what  is  true  of  two  commodities  is  true  of  any  num- 
ber, and  of  all  commodities.  But  though  commodities  in  gen- 
eral can  not  rise  or  fall  simultaneously  in  relation  to  each  other, 
they  may  rise  or  fall  in  relation  to  any  selected  one  among  the 
number;  and  if  gold  or  silver  be  the  one  selected,  commodi- 
ties in  general  may  rise  or  fall  in  relation  to  gold  or  silver. 
The  value  of  other  commodities  in  relation  to  a  commodity 
thus  selected  is  called  "price."  It  is  plain,  then,  that  while 
a  general  rise  or  a  general  fall  of  values  is  a  contradiction  in 
terms,  a  general  rise  or  a  general  fall  of  prices  is  a  perfectly 
possible,  as  indeed  it  is  a  not  uncommon,  event. 

At  the  same  time,  although  "value"  expresses  a  relation,  I 
apprehend  we  may  use  without  impropriety  such  expressions 
as  "a  sum  of  values,"  or  "an  increase  or  diminution  in  the 
aggregate  amount  of  values,"  Where,  e.  g.,  the  quantity  of 
valuable  things  possessed  by  a  community  has  been  increased, 
the  conditions  of  production  remaining  the  same;  or  where, 
the  quantity  remaining  the  same,  the  conditions  of  producing 
commodities  have  been  so  altered  as  to  cause  a  given  quantity 
to  exchange  for  a  larger  quantity  than  before  of  commodities 


"A  SUM  OF  VALUES."  13 

of  which  the  conditions  of  production  have  remained  constant 
— in  either  of  these  cases,  it  seems  to  me,  we  may  not  improp- 
erly say  that  the  sum  of  values,  or  the  aggregate  amount  of 
values,  has  increased  in  that  community.  The  usage  may  be 
illustrated  and  justified  by  analogous  expressions  employed 
with  reference  to  power.  Power,  like  value,  expresses  a  rela- 
tion; and  a  general  increase  of  the  power  of  individuals  or  of 
nations  in  relation  to  each  other  is,  of  course,  an  impossibility. 
But  this  does  not  prevent  us  from  saying  that  the  aggregate 
power  of  any  given  number  of  individuals  or  nations  has  in- 
creased; meaning  thereby,  not  that  their  relative  position  has 
been  altered,  but  that  the  elements  which  go  to  support  power 
in  them  have  been  multiplied.  We  should  thus  say  that  the 
power  of  European  nations  has  greatly  increased  within  the 
last  century.  In  a  precisely  similar  sense  we  may  speak — and 
it  will  often  be  convenient  to  speak  —  of  an  increase  or  dimi- 
nution of  aggregate  values ;  value  being  only  another  name  for 
purchasing  power. 

One  word  more  of  explanation  may  be  given.  If  value  ex- 
presses simply  a  relation,  what  is  meant  when  the  question  is 
raised  whether,  in  the  case  of  two  commodities  of  which  the 
proportions  in  exchanging  have  undergone  a  change,  the 
change  is  to  be  attributed  to  a  fall  in  the  value  of  the  one, 
or  to  a  rise  in  that  of  the  other?  Suppose,  for  example,  we 
ask  whether  the  advance  in  the  price  of  butcher's  meat  is  due 
to  meat  having  risen  or  to  money  having  fallen  in  value,  what 
do  we  mean?  Value  expressing  simply  the  relation  of  the 
commodities  in  exchange,  the  price  being  given,  that  relation 
is  determined.  Obviously  there  is  a  tacit  reference  to  the 
causes  on  which  value  depends ;  and  the  question  really  raised 
is  not  strictly  as  to  the  change  in  the  exchange  value  of  meat 
and  money,  but  as  to  the  cause  or  causes  which  have  produced 
the  change.  If  we  believe  that  the  change  is  traceable  to  a 
cause  primarily  aftecting  meat,  we  say  that  meat  has  risen,  not 


14  VALUE. 

that  money  has  fallen,  in  value ;  while  in  the  opposite  case,  we 
should  attribute  the  change  to  the  reduced  value  of  money. 

§  2.  So  much  being  premised  as  to  the  meaning  and  use  of 
the  term  "value"  in  Political  Economy,  let  us  now  endeavor 
to  set  before  our  minds  as  distinctly  as  may  be  the  precise 
problems  respecting  value  which  the  science  proposes  to  solve. 
These  are  comprised  under  the  following  heads : 

I.  We  may  inquire  as  to  the  circumstances  which  confer  on 
a  commodity  the  power  of  commanding  other  things  in  ex- 
change— in  other  words,  as  to  the  conditions  essential  to  the 
existence  of  value. 

II.  We  may  inquire  as  to  the  circumstances  on  which  de- 
pend the  particular  proportions  in  which  commodities  ex- 
change; in  other  words,  as  to  the  conditions  which  determine 
value — an  inquir}^  which  resolves  itself  into  two  distinct  is- 
sues. For,  first,  we  may  consider  value  as  manifested  in  a 
given  act  of  exchange,  and  inquire  into  the  causes  which  de- 
termine it  at  a  given  time  and  place ;  which  is  the  problem  of 
"  market  values."  Or,  secondly,  we  may  regard  value  as  the 
average  proportion  resulting  from  a  series  of  exchanges  nu- 
merous enough  to  allow  of  the  neutralization  of  exceptional 
influences;  and  this  is  the  problem  of  "normal  values."  The 
general  problem  of  value,  accordingly,  embraces  these  three 
distinct  inquiries:  1,  as  to  the  conditions  essential  to  the  ex- 
istence of  value;  2,  as  to  the  conditions  determining  market 
values;  and,  3,  as  to  the  conditions  determining  normal  val- 
ues. 

§  3.  The  two  latter  inquiries  will  be  the  subject  of  future 
consideration;  but  we  may  at  once  endeavor  to  dispose  of  the 
first  of  the  three  problems.  And  here  it  is  obvious  that  one 
of  the  circumstances  essential  to  the  existence  of  value  is  a 
capacity  of  satisfying  some  human  desire.     Plainly,  if  an  ob- 


RELATION  OF  VALUE  TO  UTILITY.  15 

ject  be  unable  to  fulfill  this  condition,  there  can  be  no  motive 
for  seeking  to  obtain  it,  still  less  for  parting  with  something 
we  possess  in  exchange  for  it:  such  an  object  would,  therefore, 
be  incapable  of  exchange  value.  The  capacity,  therefore,  of 
satisfying  a  desire — in  other  words,  the  possession  of  utility,  is 
the  first  condition  essential  to  the  existence  of  value. 

The  mere  circumstance,  however,  that  a  commodity  is  ca- 
pable of  satisfying  a  human  desire  will  not  necessarily  confer 
upon  it  the  power  of  commanding  other  things  in  exchange. 
Human  beings  will  not,  in  pursuit  of  the  satisfaction  of  their 
desires,  incur  sacrifice — such  a  sacrifice,  for  example,  as  is  im- 
plied in  parting  with  something  they  possess — if  the  end  can 
be  attained  without  submitting  to  this  condition;  and  there- 
fore, in  order  that  a  commodity  should  have  the  power  of  com- 
manding other  commodities  in  exchange,  not  only  must  it  be 
capable  of  satisfying  a  desire,  it  must  also  be  unattainable  ex- 
cept on  the  condition  of  undergoing  a  sacrifice  of  some  sort. 
No  one  living  in  a  healthy  locality,  for  example,  will  give  any 
thing  in  exchange  ^r  atmospheric  air;  nor,  where  water  is 
abundant  and  also  universally  accessible,  will  water  fetch  a 
price.  But  if  atmospheric  air  be  required  to  supply  a  diving- 
bell,  or  if  water  can  only  be  had  by  going  some  distance  to 
fetch  it,  water  and  atmospheric  air  will  both  acquire  exchange 
value.  It  results,  then,  that  the  necessity  of  undergoing  sac- 
rifice of  some  kind  as  a  condition  of  obtaining  the  commodi- 
ty, or,  let  us  say,  "difficulty  of  attainment,"  must  concur  with 
utility  in  order  to  the  existence  of  exchange  value.  And  it  is 
plain  also  that  we  must  add,  as  a  further  condition,  the  possi- 
bility of  transferring  the  possession  of  the  articles  which  are 
the  subject  of  the  exchange. 

These  three  circumstances  then — utility,  difficulty  of  attain- 
ment, and  transferableness — are  the  conditions  essential  to  the 
existence  of  value.  Where  they  are  combined  in  a  commodi- 
ty, that  commodity  has  the  power  of  commanding  other  things 


16  VALUE. 

in  exchange :  where  any  one  of  them  is  absent,  exchange  value 
can  have  no  place. 

§  4.  This  point  being  settled,  it  will  be  convenient  here  to 
enter  so  far  into  the  larger  problems  of  our  subject  as  to  dis- 
cuss a  question  much  debated  some  half- century  ago,  and 
which  has  lately  been  revived :  Does  utility  alone  give  the 
law  of  exchange  value?  in  other  words,  are  commodities  ex- 
changed for  each  other  simply  in  proportion  as  they  are  use- 
ful? To  put  the  question  in  a  concrete  form — supposing  gold 
and  silver  to  exchange  for  each  other  in  the  proportion  of  1  to 
15 ;  silver  and  copper  to  exchange  in  the  proportion  of  1  to 
30;  and  copper  and  iron  to  exchange  in  the  proportion  of  1  to 
3 ;  are  these  ratios  due  to  the  fact  that  gold  is  fifteen  times 
more  useful  than  silver;  that  silver  is  thirty  times  more  useful 
than  copper ;  and  that  copper  is  three  times  more  useful  than 
iron?  Do  the  proportions  of  exchange  invariably  correspond 
to  the  relative  utilities  of  those  metals?  And  does  this  rule 
hold  in  all  cases  of  exchange?  Unsophis^cated  readers  would, 
I  should  think,  have  no  difficulty  in  answering  this  question 
in  the  negative;  and,  in  truth,  this  is  the  sense  in  which  it  has 
in  general  been  answered  by  political  economists.  Widely  as 
writers  have  differed  respecting  the  law  governing  value,  they 
have  generally  at  least  agreed  in  the  negative  conclusion  that 
it  does  not 'simply  follow  the  utility  of  the  commodity.  In  a 
passage  which  will  be  familiar  to  most  readers,  Adam  Smith 
says:  "The  things  which  have  the  greatest  value  in  use  have 
frequently  little  or  no  value  in  exchange ;  and,  on  the  contrary, 
those  which  have  the  greatest  value  in  exchange  have  frequent- 
ly little  or  no  value  in  iisc.  Nothing  is  more  useful  than  wa- 
ter; but  it  will  purchase  scarce  any  thing;  scarce  any  thing 
can  be  had  in  exchange  for  it.  A  diamond,  on  the  contrary, 
has  scarce  any  value  in  use,  but  a  very  great  quantity  of  other 
goods  may  frequently  be  had  in  exchange  For  it."     To  the 


RELATION  OF  VALUE  TO  UTILITY.  17 

same  effect  Eicardo  writes:  "When  I  give  2000  times  more 
cloth  for  a  pound  of  gold  than  I  do  for  a  pound  of  iron,  does  it 
prove  that  I  attach  2000  times  more  utility  to  the  gold  than  I 
do  to  the  iron  ?  Certainly  not.  ...  If  utility  were  the  meas- 
ure of  value,  I  should  probably  give  more  for  the  iron."  Again, 
"If  I  give  one  shilling  for  a  loaf,  and  twenty-one  shillings  for 
a  guinea,  it  is  no  proof  that  this,  in  my  estimation,  is  the  com- 
parative measure  of  their  utility." 

In  this  view  the  English  school  of  Political  Economy  have, 
I  think,  very  generally  acquiesced.  The  principal  dissentients, 
and  they  have  not  been  numerous,  have  been  in  France;  and 
of  these  the  most  eminent,  perhaps,  has  been  M.  Say,  who  in 
his  celebrated  Traite  takes  the  position  that  utility  is  not  only 
essential  to  value,  but  also  constitutes  the  exclusive  condition 
determining  in  all  cases  the  proportions  of  exchange.  The 
arguments  by  which  M.  Say  supported  this  position  will  be 
found  in  his  treatise.  They  were  answered  by  Ricardo  in  a 
later  edition  of  his  great  work ;  and  I  have,  for  my  part,  been 
accustomed  to  regard  the  controversy  as  settled  by  that  reply ; 
nor  should  I  have  thought  it  necessary  here  to  refer  to  the 
question  as  an  open  one,  but  that  the  view  of  M.  Say  has  quite 
lately  been  revived  by  Professor  Jevons,  in  his  ingenious  work 
on  the  "  Theory  of  Political  Economy."  Following  M.  Say, 
Professor  Jevons  maintains  that  "  value  depends  entirely  upon 
utility  ;"  and  propounds  a  theorem  which  recognizes  the  degree 
of  utility  possessed,  by  a  commodity  as  the  exclusive  condition 
determining  its  exchange  value.  Under  these  circumstances, 
it  will  be  proper  to  consider  briefly  the  precise  significance  and 
importance  of  this  view  of  the  law  of  value. 

And  here  I  may  say  at  once — what  indeed,  with  the  pas- 
sages which  I  have  quoted  fi'om  Adam  Smith  and  Ricardo  be- 
fore him,  will  already  be  evident  to  the  reader — that  the  ques- 
tion raised  by  Piofessor  Jevons,  and  which  had  previously 
been  raised  by  M.  Say,  is  primarily  a  question  of  words — a 

2 


18  VALUE. 

question  as  to  what  is  the  proper  meaning  of  "  utility."  This, 
I  say,  is  evident,  because,  accepting  utility  in  the  sense  in  which 
it  is  used  in  those  passages,  the  statements  advanced  are  real- 
ly not  open  to  controversy.  Nor  can  there  be  much  doubt 
or  difficulty  as  to  what  that  sense  is.  Manifestly  by  utility 
Adam  Smith  and  Ricardo,  and  those  who  have  followed  their 
doctrine  on  this  point,  have  understood  the  quality  of  being 
suitable  to  human  purposes — this  quality  purely  and  simply, 
and  irrespective  of  extraneous  considerations ;  while  they 
would  doubtless  have  regarded  the  degree  of  utility  as  meas- 
ured by  the  importance  of  the  purposes  to  which  the  useful 
commodity  ministered.  In  this  sense  it  is  true  beyond  con- 
troversy that  water  is  useful,  even  though  it  fetched  nothing 
in  the  market,  and  more  useful  than  many  articles — e.  g.^  al- 
cohol—  that  sell  for  more.  The  world  could  manifestly  get 
on  better  without  alcohol  than  without  water.  Similarly,  it  is 
true  to  say  that  a  diamond  is  less  useful  than,  e.  g.^  coal,  and 
that  gold  is  less  useful  than  iron  ;  or,  at  all  events,  that  the 
degree  of  utility  of  these  several  products — the  importance  of 
the  services  which  they  render  in  the  economy  of  human  soci- 
ety— is  not  represented  by  the  proportions  in  which  they  ex- 
change for  each  other.  These  propositions,  I  say,  are  indis- 
putable in  the  sense  in  which  they  are  laid  down  ;  and,  ac- 
cordingly, in  taking  the  position  that  value  depends  entirely 
upon  utility,  and  is  measured  by  the  degree  of  utility,  Mr. 
Jevons  must  be  understood  to  employ  the  term,  as  M.  Say  for- 
merly employed  it,  in  a  different  sense  from  that  in  which  it 
is  understood  by  those  who  maintain  the  ordinary  view.  In 
point  of  fact  this  is  so.  Professor  Jevons  means  by  utility, 
not  what  Adam  Smith  and  Ricardo  meant,  but  their  idea^Zits 
something  more.  If  we  ask  what  that  something  more  is,  we 
find  it  to  consist  of  all  circumstances  and  considerations  what- 
ever which,  in  any  given  act  of  exchange,  exert  an  influence 
on  those  taking  part  in  it.     Thus  the  fact  that  water  is  capa- 


RELATION  OF  VALUE  TO  UTILITY.  VJ 

ble  of  ministering  to  important  human  purposes  would  not, 
as  I  understand  the  doctrine,  entitle  water  to  be  considered,  in 
economic  estimation,  a  useful  commodity.  Before  pronoun- 
cing on  the  point,  we  must  know  the  circumstances  under 
which  any  given  dealings  in  the  commodity  take  place.  If 
they  take  place  in  London,  where  water  can  not  be  pro- 
cured in  the  quantity  required  by  the  population  without  ex- 
pense, and  where  it  consequently  bears  a  price,  water  is  a  use- 
ful commodity.  But  if  the  scene  be  changed  to  a  country 
village,  where  water  is  abundant  beyond  the  needs  of  the  in- 
habitants, and  consequently  fetches  nothing  in  exchange,  water 
suddenly  becomes  useless.  Consistently  with  this  view,  the 
degree  of  utility  is  measured,  not  by  the  importance  of  the 
purposes  which  the  article  subserves,  but  by  the  effect  pro- 
duced by  all  the  considerations  aforesaid  in  deciding  what  it 
shall  sell  for.  A  woolen  coat  sells  for  less  now  than  it  did  a 
century  ago ;  therefore  it  is  less  useful  now  than  then.  It  sells 
for  more  in  Australia  than  in  England;  therefore  it  is  more 
useful  in  Australia  than  in  England.  According  to  the  same 
standard  of  utility,  every  improvement  in  production,  just  in 
proportion  as  it  cheapens  a  commodity,  diminishes  its  utility ; 
while  every  thing  that  raises  the  cost  enhances  the  utility.  If, 
then,  I  have  correctly  interpreted  Mr.  Jevons's  doctrine  (and  I 
have  certainly  taken  every  pains  to  understand  it),  the  term 
"utility"  stands  with  him  for  an  entirely  different  conception 
from  that  which  it  expresses  in  the  language  of  Adam  Smiih, 
and  of  most  political  economists.  In  attempting,  therefore,  to 
estimate  his  view,  we  have  to  consider  two  points  —  first,  a 
question  of  nomenclature,  as  to  the  convenience  of  this  partic- 
ular use  of  the  term  ;  and,  secondly,  one  of  scientific  theory,  as 
to  the  light  thrown  by  the  doctrine — utility  being  understood 
in  the  sense  explained — on  the  phenomena  of  exchange  value. 
As  regards  the  question  of  nomenclature,  it  will  scarcel}^,  I 
think,  be  denied  that  Mr.  Jevons's  use  of  the  term  "utility"  is 


aO  VALUE. 

wide  of  the  common  signification,  and  on  this  ground  open  to 
serious  objection.  A  use  of  language  according  to  which  wa- 
ter is  only  useful  where  it  is  paid  for,  and  in  proportion  as  it 
is  paid  for ;  according  to  which  atmospheric  air  is  only  useful 
in  diving-bells,  mines,  and  other  places  whither  it  is  costly  to 
carry  it;  according  to  which  meat  and  corn  are  less  useful 
commodities  in  the  United  States  than  in  England,  and  cloth- 
ing and  cutlery  less  useful  in  England  than  in  the  United 
States ;  according  to  which  diamonds  are  more  useful  than 
coal,  and  iron  is  the  least  useful  of  the  metals — such  a  use  of 
language,  it  will  be  admitted,  requires  strong  reasons  for  its 
justification.  No  doubt,  in  framing  a  scientific  nomenclature, 
it  is  often  necessary  to  depart  from  the  ordinary  use  of  words. 
Political  Economy  draws  its  technical  terms  from  popular  lan- 
guage ;  and  the  mere  circumstance  that  it  is  obliged  to  assign 
a  precise  meaning  to  these  terms,  and  to  adhere  strictly  to  this 
meaning  once  assigned  —  this  circumstance  alone  constantly 
compels  a  deviation  from  the  more  or  less  vague  and  fluctu- 
ating sense  which  attaches  to  all  words  in  extensive  popular 
use.  So  much  must  be  admitted.  But  at  least  the  necessity 
for  deviation  should  be  made  out.  If  a  new  sense  be  given  to 
a  term  in  order  to  convey  a  novel  doctrine,  it  should  at  least 
be  shown  that  the  innovation  is  needed  for  the  due  apprecia- 
tion of  the  phenomena,  and  that  the  idea  is  best  expressed  by 
the  term.  In  other  words,  it  should  be  shown  that  the  theory, 
for  the  sake  of  which  the  term  is  employed  in  the  unusual 
way,  can  justify  itself  by  the  only  test  by  which  a  theory  is 
justified,  namely,  by  explaining  facts,  and,  if  it  be  a  new  theo- 
ry, by  explaining  facts  not  explicable,  or  not  so  simply  expli- 
cable, by  received  theories.  Now  I  must  frankly  say,  I  have 
failed  to  find  in  Mr.  Jevons's  volume  any  such  justification  of 
his  doctrine. 

I  must  go  farther.     The  current  theories  respecting  value, 
though,  as  will  be  seen,  I  am  far  from  thinking  them  perfect, 


RELATION  OF  VALUE  TO  UTILITY.  21 

nevertheless  do  succeed  in  explaining  a  large  proportion  of  the 
facts  actually  presented  in  the  dealings  of  commerce.  But  I 
am  wholly  unable  to  conceive  how  any  thing  amounting  to  a 
real  explanation  can  be  extracted  from  the  theory  we  are  now 
considering.  What  does  it  really  amount  to?  In  my  appre- 
hension to  this,  and  no  more — that  value  depends  upon  utility, 
and  that  utility  is  whatever  aflects  value.  In  other  words,  the 
name  "  utility  "  is  given  to  the  aggregate  of  unknown  conditions 
which  determine  the  phenomenon,  and  then  the  phenomenon 
is  stated  to  depend  upon  what  this  name  stands  for.  Suppose, 
instead  of  "  utility,"  we  call  the  unknown  conditions  x^  we 
might  then  say  that  value  was  determined  by  x;  and  the  prop- 
osition would  be  precisely  as  true,  and,  so  far  as  I  can  see,  as 
instructive,  as  Mr.  Jevons's  doctrine.  In  either  case  the  infor- 
mation conveyed  would  be  that  value  was  determined  by  the 
conditions  which  determine  it — an  announcement,  the  impor- 
tance of  which,  even  though  presented  under  the  form  of  ab- 
struse mathematical  symbols,  I  must  own  myself  unable  to  dis- 
cern.* 

There  seems,  therefore,  no  reason  for  departing  from  the 
hitherto  commonly  received  sense  of  utility ;  and  it  is  accord- 
ingly in  this  sense — already  defined — that  I  shall  henceforth 
employ  the  term.  Thus  understood,  utility,  however  essential 
to  the  existence  of  value,  does  not  alone  and  exclusively  give 
the  law  of  the  phenomenon.  That  law,  or  rather  (for,  as  I 
have  already  observed,  the  phenomenon  is  twofold)  those  laws, 
wc  have  yet  to  find. 

*  I  should  be  sorry  if  my  dissent  from  Mr.  Jevons  on  this  point  should  convey 
an  impression  that  I  undervalue  the  work  in  which  the  doctrine  I  have  combated 
is  advanced.  Though  my  ignorance  of  mathematics  disqualifies  me  for  entering 
into  many  of  tlie  discussions,  I  am  far  from  being  insensible  to  the  lucid  statements 
of  economic  doctrine,  and  to  the  numerous  original  and  suggestive  remarks,  with 
which  the  volume  abounds. 


CHAPTER  11. 

SUPPLY  AND  DEMAND. 

§  1.  Before  proceeding  to  deal  with  the  more  specific  prob- 
lems of  value,  it  will  be  convenient  to  devote  a  brief  space  to  a 
consideration  of  the  agencies  of  Supply  and  Demand.  If  we 
were  to  judge  by  the  careless  freedom  with  which  these  terms 
are  tossed  to  and  fro  in  popular  discussion,  we  should  be  apt 
to  conclude  that  there  was  no  portion  of  economic  science 
which  the  general  public  had  more  completely  at  its  fingers' 
ends.  "The  law  of  Supply  and  Demand"  is  commonly  sup- 
posed to  be  a  principle  capable  of  explaining  all  or  nearly  all 
the  phenomena  of  wealth,  and  which  at  the  same  time  reveals 
itself  bv  its  own  light.  No  one  is  imasrined  so  i2;norantas  not 
to  know  what  it  means,  or  so  dull  as  not  to  perceive  its  mar- 
velous efficacy  as  a  solvent  of  problems.  Indeed,  with  a  large 
number  of  people,  Supply  and  Demand  would  seem  to  be  not 
so  much  conditions  to  be  taken  account  of  in  solving  problems, 
as  conjuring  terms,  by  pronouncing  which  difficulties  may  be 
exorcised,  and  obstacles  of  all  sorts  removed  from  our  path. 
In  point  of  fact,  I  believe  there  is  no  doctrine  of  Political  Econ- 
omy more  generally  misunderstood,  or,  to  speak  plainly,  re- 
specting which  a  more  complete  absence  of  all  clear  understand- 
ing of  any  kind  prevails,  than  this  very  doctrine.  The  terms 
are  used  and  the  supposed  "  law  "  is  appealed  to,  for  the  most 
part,  without  any  distinct  ideas  being  attached  to  the  phrases 
employed.  Nay,  even  among  not  a  few  of  the  professed  culti- 
vators of  economic  science  there  seems  to  be,  in  respect  to  this 
doctrine,  if  I  may  venture  to  say  so,  a  want  of  thoroughness 


AGGREGATES.  33 

and  clearness  of  view  singularly  prejudicial  to  sound  reason- 
ing, and  which  has  not  a  little  tended  to  throw  a  haze  over 
some  important  problems  of  the  science. 

The  fundamental  truth  to  be  seized  in  connection  with  Sup- 
ply and  Demand — the  failure  to  seize  which  is  the  source  of 
most  of  the  loose  reasoning  and  fallacious  inference  of  which 
those  terms  are  made  the  vehicle — is  that,  conceived  as  aggre- 
gates, as  each  comprising  all  the  facts  of  that  kind  occurring  in 
a  given  community,  Supply  and  Demand  are  not  independent 
phenomena,  of  which  either  may  indefinitely  increase  or  dimin- 
ish irrespective  of  the  other,  but  phenomena  strictly  connect- 
ed and  mutually  dependent ;  so  strictly  connected  and  interde- 
pendent that  (excluding  temporary  effects,  and  contemplating 
them  as  permanent  and  normal  facts)  neither  can  increase  nor 
diminish  without  necessitating  and  implying  a  corresponding 
increase  or  diminution  of  the  other.  Aggregate  demand  can 
not  increase  or  diminish  without  entailing  a  corresponding  in- 
crease or  diminution  of  aggregate  supply ;  nor  can  aggregate 
supply  undergo  a  change  without  involving  a  corresponding 
change  in  aggregate  demand.  These  propositions  seem  to  me 
to  be  quite  fundamental,  and  indeed  elementary — expressing, 
as  they  do,  consequences  which  arise  directly  from  the  nature 
of  an  industrial  economy  founded  on  the  principle  of  separa- 
tion of  employments.  Fundamental  and  elementary,  however, 
as  they  are,  and  much  as  has  been  written  on  the  subject, 
they  stand  in  need  of  all  the  aid  that  clear  exposition  and  apt 
illustration  can  give  them. 

§  2.  In  attempting  something,  however  inconsiderable,  to- 
ward this  much  -  needed  elucidation,  I  would  ask  the  reader, 
in  the  first  place,  to  set  before  his  mind  the  phenomena  in 
their  most  elementary  form,  and  to  observe  their  essential 
character  and  place  in  the  economy  of  industry.  Supply  and 
Demand  are  evidently  facts  incident  to  the  exchange  of  the 


24  SUPPLY  AND  DEMAND. 

products  of  industry,  which  again  is  a  consequence  of  the  sep- 
aration of  employments.  So  soon  as  people  engage  in  pro- 
ductive industry  upon  the  principle  of  separation  of  employ- 
ments, the  need  arises  of  exchanging  the  results  of  their  work ; 
each  becomes  a  supplier  of  what  he  has  produced,  a  demander 
of  what  he  seeks  to  consume.  Let  us  suppose  a  regime  of 
barter :  under  such  circumstances  Supply  would  consist  in  the 
commodities  offered  in  exchange  for  other  commodities.  In 
what  would  Demand  in  such  a  case  consist?  We  can  only 
give  the  same  reply :  in  the  commodities  offered  in  exchange 
for  other  commodities.  In  other  words,  under  the  simplest 
and  most  elementary  form  of  exchange.  Demand  and  Supply, 
as  general  phenomena,  as  aggregates,  could  not  be  discrimi- 
nated. Each  commodity  would  be  in  turn  Supply  and  Demand 
— Supply  in  reference  to  the  person  seeking  to  obtain  it.  De- 
mand in  reference  to  the  person  who  used  it  as  the  means  of 
obtaining  something  else.  It  would  be  possible  indeed,  even 
in  this  state  of  things,  to  use  the  terms  with  a  distinct  mean- 
ing, so  long  as  we  referred  the  acts  to  individuals  or  to  par- 
ticular products.  A.  B.  would  be  a  demander  of  certain  ar- 
ticles, a  supplier  of  others ;  and  the  demand  for  meat  or  for 
corn  would  be  a  perfectly  distinct  circumstance  from  the  sup- 
ply of  meat  or  of  corn.  But,  so  soon  as  the  point  of  view  was 
shifted  from  the  particular  to  the  general — so  soon  as  we  at- 
tempted to  conceive  Supply  or  Demand  as  proceeding  from 
the  community  at  large — the  phenomena  would  be  confound- 
ed, or  rather  would  converge  into  one.  This,  I  say,  would  be 
the  character  of  Supply  and  Demand  under  a  regime  of  bar- 
ter. Let  us  now  observe  how  this  simple  character  is  modi- 
fied by  the  introduction  of  a  medium  of  exchange.  A  me- 
dium of  exchange  represents  general  purchasing  power;  and, 
all  transactions  being  conducted  through  this  medium,  it  be- 
comes possible  to  distinguish  Demand  and  Supply,  not  merely 
in  reference  to  particular  persons  and  products,  but  as  general 


ANALOGOUS  CONCEPTIONS.  25 

ideas.  Every  act  of  exchange  may  now  be  regarded  either 
from  the  point  of  view  of  him  who  offers  general  purchasing 
power,  or  from  that  of  him  who  offers  specific  commodities; 
all  acts  of  the  former  class  may  be  considered  together,  and 
apart  from  all  acts  of  the  latter:  and  we  thus  arrive  at  dis- 
tinct general  ideas  of  Demand  and  Supply.  Accordingly, 
under  our  actual  regime  we  speak  of  Demand  and  Supply,  not 
merely  as  of  this  or  of  that  person,  but  as  of  a  whole  commu- 
nity, and  not  merely  with  reference  to  this  or  that  product, 
but  with  reference  to  all  products :  aggregate  Demand  or  ag- 
gregate Supply  thus  become  possible  ideas.  I  would,  there- 
fore, define  the  terms  as  follows :  Demand,  as  the  desire  for 
commodities  or  services,  seeking  its  end  by  an  offer  of  general 
purchasing  power;  and  Supply,  as  the  desire  for  general  pur- 
chasing power,  seeking  its  end  by  an  offer  of  specific  commod- 
ities or  services. 

The  reader  will  not  fail  to  observe  that,  as  I  have  developed 
the  ideas  in  question.  Demand  and  Supply  are  strictly  analo- 
gous conceptions.  There  is  on  each  side  a  mental  element,  a 
desire,  and  on  each  a  material  element,  specific  commodities 
and  services*  in  one  case,  and  that  particular  commodity 
which  is  taken  as  the  representative  of  general  purchasing 
power  in  the  other;  and  as  in  each  case  the  desire  may  be  re- 
garded as  indefinite  and  practically  unlimited,  so  in  each  case 
the  complex  phenomenon  is  limited  by  its  material  element — ■ 
Supply  by  the  quantity  of  specific  commodities  offered  for 
sale,  and  Demand  by  the  quantity  of  purchasing  power  offered 

*  It  will  be  said,  perhaps,  that  a  "service"  is  not  u  material  condition.  But 
conceding  this — though  in  truth  the  most  numerous  class  of  services  really  con- 
sist in  their  material  effects — still  conceding  this,  the  capacity  to  render  a  service 
is  always  embodied  in  a  material  form.  Tlie  supply  of  services,  therefore,  will  be 
measured  by  the  number  of  human  beings  able  and  willing  to  render  services. 
The  supjily  of  any  given  kind  of  labor,  e.  9..  will  be  measured  by  the  number  of 
laborers  able  and  willing  to  perform  this  kind  of  labor. 


26  SUPPLY  AND  DEMAND. 

for  their  purchase.*  The  two  conceptions  are  thus  strictly 
analogous — a  point  on  which  I  feel  it  the  more  necessary  to 
insist,  inasmuch  as  the  contrary  view  is  countenanced,  in  one 
portion  of  his  work  on  "  Political  Economy,''  by  the  high  au- 
thority of  Mr.  Mill.  Criticising  the  expression  "  a  ratio  be- 
tween Demand  and  Supply,"  Mr,  Mill  asks,  "  What  ratio  can 
there  be  between  a  quantity  and  a  desire,  or  even  a  desire 
combined  with  a  power?''  The  criticism  has  been  accepted 
as  decisive,  as  far  as  I  have  observed,  by  all  later  writers :  nev- 
ertheless, I  feel  bound  to  demur  to  it;  and  further,  I  must 
contend  that  the  perception  of  the  strict  analogy  between  the 
ideas  in  question  is  a  point  of  very  great  importance.  "  What 
ratio  can  there  be  between  a  quantity  and  a  desire  com.bined 
with  a  power?"  But  surely  it  is  not  correct  to  describe  Sup- 
ply simply  as  a  quantity.  A  mere  quantity  of  goods  does  not 
constitute  Supply  until  it  is  offered  for  sale,  that  is  to  say, 
until  the  quantity  is  connected  with  a  mental  feeling;  and 
though  it  is  true,  as  I  have  just  pointed  out,  that  the  phenom- 
enon is  measured  by  the  quantity  and  not  by  the  feeling,  it 
is  not  the  less  true  that  Demand  is  also  measured  by  its  ma- 
terial element.  The  two  conceptions  are  thus  essentially  anal- 
ogous; and  the  recognition  of  this  seems  to  be  indispensable 
to  the  correct  apprehension  of  their  true  relation.  Accept 
the  notion  that  Demand  and  Supply  are  facts  of  a  different 
order,  incapable  of  comparison  and  measurement,  and  you  can 
hardly  refuse  to  acknowledge  that  they  are  independent  f;icts 
which  may  increase  or  diminish  irrespective  of  each  other. 
But  this  is  precisely  the  idea  that  is  at  the  bottom  of  most  of 
the  prevalent  fallacies  connected  with  those  terms. 


*  I  say  quantity  of  purchasing  power,  because  ultimately  all  purchasing  power 
is  resolvable  into  quantity — under  our  system  into  weights  of  gold  ;  under  others 
into  weights  of  silver,  or  of  gold  and  silver ;  under  inconvertible  currencies  into 
numbers  of  bits  of  .paper  printed  in  a  certain  way. 


DEMAND,  AS  ''  QUANTITY  DEMANDED."  27 

§  3.  Mr.  Mill,  indeed,  fully  recognizes — no  one  more  fully — 
the  importance  of  keeping  in  view  the  strict  analogy  of  De- 
mand and  Supply ;  and  it  is  apparently,  at  least  in  part,  with 
a  view  to  this  end  that  he  gives  the  peculiar  definition  of  "de- 
mand "  which  is  to  be  found  in  the  chapter  from  which  I  have 
quoted.  Demand,  as  there  defined,  is  to  be  understood  as 
measured,  not,  as  my  definition  would  require,  by  the  quantity 
of  purchasing  power  offered  in  support  of  the  desire  for  com- 
modities, but  by  the  quantity  of  commodities  for  which  such 
purchasing  power  is  oftered.  There  is  no  doubt  that,  as  thus 
conceived,  that  is  to  say,  as  quantity  demanded  and  quantity 
supplied,  Demand  and  Supply  are  perfectly  analogous  facts; 
but,  as  I  think  I  have  shown,  this  way  of  regarding  them  is  by 
no  means  necessary  in  order  to  render  them  analogous,  while 
it  seems  to  me  that  the  idea  of  "  demand  "  as  quantity  demand- 
ed, though  not  foreign  to  economic  discussion,  is  very  far  from 
being  adequate  to  the  general  purposes  of  the  science. 

In  offering  a  few  remarks  in  justification  of  this  opinion,  let 
me  here  say  that,  while  contending  for  the  idea  of  "  demand," 
as  set  forth  above,  as  the  proper  meaning  of  the  term,  I  have 
no  desire  to  restrict  the  term  exclusively  and  invariably  to 
that  meaning.  I  quite  admit  that  it  may  be  convenient  occa- 
sionally to  employ  "  demand  "  in  other  senses ;  and  though  the 
employment  of  the  same  economic  term  in  different  senses  is 
not  free  from  objection,  it  is  an  expedient  to  which  the  econo- 
mist must,  in  the  dearth  of  language,  occasionally  have  re- 
course; nor  will  much  harm  result,  if  we  only  bear  in  mind 
that  the  senses  are  distinct,  and  do  not  confound  them  in  ar- 
gument. Moreover,  I  am  willing  to  allow  that  the  meaning 
given  to  "demand"  by  Mr.  Mill  in  the  passage  in  question  ex- 
presses a  sense  in  which  it  is  sometimes  convenient,  perhaps 
necessary,  to  use  the  word.  But,  while  conceding  this  much, 
I  must  still  contend  for  the  correctness  of  my  own  definition, 
as  expressing  the  principal  and  proper  sense  of  the  term  in 


28  SUPPLY  AND  DEMAND. 

economic  science — meaning  by  this  a  sense  more  important 
and  fundamental  than  any  other  to  which  the  terra  in  that  sci- 
ence is  appHed — a  sense  indispensable  to  economic  exposition, 
and  which  "  demand  "  easily  and  naturally  expresses. 

The  importance  and  fundamental  character  of  a  scientific 
idea  must,  I  apprehend,  be  judged  by  the  place  which  it  occu- 
pies in  the  theories  of  a  science.  Now  I  have  no  need  to  go 
beyond  Mr.  Mill's  work  to  show  that  the  sense  assigned  to 
"demand"  in  my  definition  may  be  justified  by  this  criterion. 
I  take  three  capital  theories  of  the  science — wages,  money,  and 
foreign  trade.  In  each  of  these  Supply  and  Demand  form 
the  pivots  of  the  doctrine,  the  two  poles  on  which  the  exposi- 
tion turns.  But  when  we  come  to  consider  in  what  sense  "de- 
mand "  is  used  in  those  theories,  we  find  that  in  every  instance 
it  is  regarded  as  represented  and  measured  by  the  purchasing 
power  offered,  not  by  the  quantity  of  commodities  or  services 
demanded.  It  is  fundamental  in  Mr.  Mill's  doctrine  of  wages,"^ 
as  in  every  sound  exposition  of  that  subject,  that  demand  for 
labor  should  be  understood  as  measured  by  the  quantity  of 
capital  and  other  wealth  offered  in  exchange  for  labor.  When 
the  economist  speaks  of  an  increased  demand  for  labor  as  tend- 
ing to  raise  wages,  he  does  not  mean  a  demand  for  a  larger 
number  of  laborers  —  a  condition  which  would  have  no  such 
tendency,  unless  accompanied  by  an  increase  of  purchasing 
power,  in  this  instance  of  capital  offered  ;  and,  this  condition 
being  present,  the  increased  demand  would  tend  to  raise 
wages,  whether  the  numbers  actually  responding  to  the  call 
were  larger  or  not;  and  so  of  the  other  conclusions  affecting 
wages  deduced  from  the  law  of  Demand  and  Supply;  the  sense 
which  I  have  assigned  to  the  term  is  the  only  sense  in  which 
they  will  hold  good  for  a  moment.  Similarly,  in  his  theory  of 
money  Mr.  Mill  considers  the  demand  for  money  as  measured 

*  "Principles  of  Political  Economy,'"  sixth  edition,  book  ii.,  chap.  xi..  §  1. 


PROPER  SENSE  OF  DEMAND.  29 

by  the  quantity  of  goods  of  all  sorts  offered  in  exchange  for 
money,  not  by  the  quantity  of  money  demanded.*  And  again, 
in  his  theory  of  foreign  trade,f  we  find  "  demand  "  steadily 
employed,  as  it  seems  to  me,  in  the  same  sense.  As  the  im- 
ports of  each  country  represent  in  relation  to  it  the  measure 
of  foreign  supply,  so  its  exports  represent  the  force  of  its 
demand  for  foreign  products.  Thus,  if  England  spent  more 
largely  on  such  products,  that  expenditure  would  be  carried 
into  effect  through  an  increase  of  exports ;  and  that  increase 
of  exports  would  indicate  an  increase  of  international  demand 
on  the  'part  of  England,  whatever  might  be  the  quantity  of 
commodities  imported.  The  exports  of  each  country  are  thus 
the  measure  of  its  international  demand  ;  and,  as  when  we  ex- 
tend our  view  from  a  particular  country  to  the  commercial 
world,  the  same  commodities  are  in  turn  exports  and  imports, 
Supply  and  Demand  become  (as  Mr.  Mill  is  careful  to  point 
out)  "  Reciprocal  Demand.''  It  is  only  by  thus  understanding 
the  term  that  I  am  able  to  assign  any  meaning  to  the  very  im- 
portant principle,  as  I  regard  it,  developed  by  Mi'.  Mill  in  the 
chapter  to  which  I  am  referring,  and  which  he  designates  "the 
Equation  of  International  Demand.":}; 


*  "Principles  of  Political  Economy,"  book  iii.,  chap,  viii.,  §  2. 

t  Ibid.,  book  iii.,  chap,  xviii.,  §  4. 

X  Mr.  Mill  indeed  states  that  "  the  Equation  of  International  Demand  is  but  an 
extension  of  the  more  general  law  of  value,  which  we  called  the  Equation  of  Sup- 
ply and  Demand,"  and  refers  to  his  chapter  on  the  latter  subject ;  but  I  must  con- 
fess myself  unable  to  follow  his  reasoning  in  this  remark.  On  the  contrary,  the 
two  doctrines  appear  to  me  to  be  perfectly  distinct.  The  equation  of  Supply  and 
Demand,  in  the  chapter  on  that  subject,  refers,  as  I  understand  it,  to  an  equality 
(realized,  it  is  alleged,  in  every  market)  between  the  quantity  of  a  commodity  de- 
manded and  the  quantitji  of  the  same  commodity  supplied.  The  ecpiality  asserted, 
therefore,  has  reference  to  quantity,  and  to  quantity  embodied  in  a  single  commod- 
ity, that  which  is  the  subject-matter  of  exchange.  The  doctrine,  in  truth,  as  I  shall 
hereafter  have  occasion  more  particularly  to  point  out,  amounts  to  an  assertion 
that  what  is  bought  is  equal  to  what  is  sold,  that  a  given  quantity  of  a  given  com- 


30  SUPPLY  AND  DEMAND. 

§  4.  I  conceive,  therefore,  that  I  am  justified  by  Mr.  Mill's 
practice,  if  not  by  his  precept,  in  understanding  Demand  and 
Supply  in  the  sense  in  which  I  have  defined  them ;  and  what 
I  wish  now  to  establish  is,  that,  as  thus  understood.  Demand 
and  Supply,  in  their  general  character,  and  excluding  tempo- 
rary efiects,  are  not  independent  phenomena,  but  fundamentally 
the  same  phenomena  regarded  from  different  points  of  view — 
different  faces  of  the  same  facts;  and  that  consequently  nei- 
ther can  increase  nor  diminish  without  a  corresponding  increase 
or  diminution  of  the  other. 

If  the  reader  will  recall  the  description  which  I  gave  a  few 
pages  back  of  what  would  be  the  nature  of  Supply  and  De- 
mand under  a  system  of  barter,  he  will  have  no  difficulty,  I 
think,  in  admitting  the  essential  soundness  of  this  position, 
though  he  may  not  find  it  easy  at  once  to  reconcile  it  with 
some  facts  that  we  witness  under  our  actual  industrial  economy. 
It  was  then  pointed  out  that  Demand  and  Supply,  on  the  sup- 
position of  exchange  being  carried  on  by  barter,  though  dis- 
tinct conceptions  so  long  as  we  refer  them  to  particular  indi- 
viduals or  products,  become  incapable  of  discrimination,  so 
soon  as  we  pass  from  the  particular  to  the  general  point  of  view 
and  regard  them  as  aggregates.  The  total  demand  of  a  com- 
munity would  under  such  circumstances  be  represented  by 
all  the  commodities  and  services  there  offered  in  exchange  for 
other  commodities  and  services ;  and  these  would  also  consti- 
tute the  total  supply  in  that  community.  Now  the  essential 
character  of  exchange  is  not  altered  by  the  employment  of  a 
circulating  medium,  however  the  increased  complexity  of  the 


modify  is  equal  to  itself.  But  the  equality  asserted  in  '•  tiie  Equation  of  Interna- 
tional Demand,"  as  I  understand  it,  is  far  from  being  of  this  nature  :  it  refers  not 
to  quantity  but  to  value,  the  value,  namely,  of  the  imports  and  exports  of  each 
commercial  country;  nor  is  it  realized  in  a  single  commodity,  but  in  two  distinct 
groups  of  commodities,  namely,  tliose  issuing  from  and  those  entering  such  coun- 
tries. 


NOT  INDEPENDENT  PHENOMENA.  31 

facts  may  tend  to  conceal  its  true  nature.  The  process  is  facil- 
itated, but  what  happens  is  in  effect  the  same.  It  is  still  an 
exchange  of  commodities  and  services  against  commodities  and 
services:  and  the  relation  between  Demand  and  Sujoply  re- 
mains what  it  was  in  the  simpler  case.  It  is  true,  where  we 
have  a  medium  of  exchange,  we  can  form  the  conception  of 
general  Demand  as  distinct  from  general  Supply — a  distinction 
which  disappears  under  a  barter  regime — because  we  can  sepa- 
rate in  our  thoughts  general  purchasing  power  from  specific 
commodities.  But  in  point  of  truth  and  fact  the  two  things 
are  not  separable.  Purchasing  power,  in  the  last  resort,  owes 
its  existence  to  the  production  of  a  commodity,  and,  the  condi- 
tions of  industry  being  given,  can  only  be  increased  by  increas- 
ing the  quantity  of  commodities  offered  for  sale ;  that  is  to  say. 
Demand  can  only  be  increased  by  increasing  Supply.  The 
purchasing  power  of  England  is  represented  by  the  aggregate 
of  all  her  products ;  and  as  it  can  not  increase  except  through 
an  increase  of  these,  so  an  increase  of  her  products  (if  adapted 
and  duly  proportioned  to  the  requirements  of  human  beings), 
will,  other  thijigs  being  the  same,  carry  with  it  a  corresponding 
increase  of  her  purchasing  power.  It  follows,  therefore,  that 
the  relation  of  general  Demand  and  general  Supply  to  each 
other  is  not  affected  by  the  employment  of  a  circulating  me- 
dium, but  continues  essentially  the  same  under  a  monetary,  as 
under  a  barter,  regime.  In  neither  case  are  they  independent 
facts,  but  essentially  the  same  facts  presenting  themselves  under 
different  aspects.  Demand,  as  a  general  phenomenon,  can  noi 
exist  without  Supply,  and  can  not  increase  except  in  propor- 
tion as  Supply  increases.  This,  I  repeat,  is  fundamental  in  the 
theory  of  exchange ;  and  all  assumptions  to  the  contrary  must 
be  regarded  as  baseless  and  absurd. 

§  5.  The  illusion  which  I  am  combating,  that  Demand  and 
Supply  are  independent  economic  forces,  sometimes  assumes 


32  SUPPLY  AND  DEMAND. 

another  form  in  the  notion  that  producers  and  consumers  are 
distinct  classes,  and  that  production  and  consumption  are  acts 
which  may  go  on  irrespective  of  each  other.  It  is  true,  indeed, 
there  are  consumers  who  are  not  producers  (and  the  bearing 
of  this  fact  on  the  theory  just  expounded  I  shall  presently  con- 
sider); but  in  the  main  the  relation  of  consumers  and  produ- 
cers in  an  industrial  community  may  be  thus  illustrated.  A 
certain  number  of  people,  A,  B,  C,  D,  E,  F,  etc.,  are  engaged 
in  industrial  occupations — A  produces  for  B,  C,  D,  E,  F ;  B  for 
A,  C,  D,  E,  F;  C  for  A,  B,  D,  E,  F,  and  so  on.  In  each  case 
the  producer  and  the  consumers  are  distinct,  and  hence,  by  a 
very  natural  fallacy,  it  is  concluded  that  the  whole  body  of 
consumers  is  distinct  from  the  whole  body  of  producers ;  where- 
as they  consist  of  precisely  the  same  persons.  Producers  are 
identified  with  Supply ;  consumers  with  Demand ;  and  thus 
the  belief  in  the  independence  of  those  agencies  seems  to  find 
confirmation.  The  prevalence  of  this  notion  was  brought  into 
view  very  prominently  in  the  discussion  which  took  place  a 
year  or  two  back  on  the  nine  hours'  movement.  By  several 
of  those  who  took  part  in  that  discussion,  and  among  these  by 
some  who  wrote  with  not  a  little  parade  of  economic  knowl- 
edge, it  was  assumed  almost  as  axiomatic,  that  the  result  of  the 
movement,  supposing  it  to  be  extended  to  the  whole  circle  of 
industry,  would  be  a  general  increase  of  Demand  beyond  Sup- 
ply, issuing  in  a  general  advance  of  prices.  The  producers,  it 
was  seen  (unless  their  industry  gained  in  efficiency  what  it  lost 
in  duration),  would  on  the  whole  produce  less;  and  therefore 
Supply  would  diminish  ;  but,  not  perceiving  any  connection 
between  Supply  and  Demand,  the  disputants  took  it  for  grant- 
ed that  Demand  would  go  on  as  before.  It  will  be  scarcely 
necessary  now,  I  trust,  to  point  out  the  gross  fallacy  of  the  as- 
sumption. The  producers  are  also  consumers;  and  if,  on  the 
whole,  less  is  produced,  there  would,  on  the  whole,  be  fewer 
commodities  to  be  exchanged.    But  why  should  this  affect  the 


PRODUCTION  AND  CONSUMPTION.  33 

proportions  in  which  they  are  exchanged?  or  why  should  it 
affect  the  relations  between  commodities  in  general  and  money  ? 
If  a  given  group  of  laborers  and  capitalists  produce  less  (how- 
ever they  may  divide  the  produce  among  themselves),  they 
have,  as  an  aggregate,  less  to  offer  for  sale;  and,  as  all  other 
groups  of  laborers  and  capitalists,  including  those  who  are  the 
means,  direct  or  indirect,  of  bringing  gold  and  silver  into  the 
country,  would  also  have  less  to  offer  for  sale,  the  relative  po- 
sition of  each  to  the  community  would  not  be  disturbed;  and 
the  diminution  of  general  Supply  would  be  exactly  balanced 
by  a  corresponding  diminution  of  general  Demand.  The  ab- 
surdity of  the  supposition  might  indeed  be  more  easily  shown 
by  simply  adverting  to  the  principles  governing  the  value  of 
money,  and  by  showing  the  impossibility  of  its  being  altered 
by  such  a  cause  as  the  movement  in  question  ;  but  the  error,  in 
truth,  goes  deeper,  and  can  only  be  adequately  exposed  by  ref- 
erence to  the  fundamental  character  of  industrial  exchange  as 
determined  by  the  separation  of  employments. 

But  a  formidable  obstacle  to  the  doctrine  of  the  mutual 
interdependence  and  fundamental  identity  of  Demand  and 
Supply  is  supposed  to  exist  in  the  presence  in  all  wealthy 
communities  of  a  large  body  of  persons  who  are  consumers 
merely,  the  idle  rich,  nati  consumere  fruges — people,  it  will  be 
urged,  who  takes  a  large  and  effective  part  in  consumption  and 
Demand,  but  who  produce  nothing,  and  contribute  nothing  to 
Supply.  How,  it  will  be  asked,  is  the  existence  of  this  class 
to  be  reconciled  with  the  doctrine  for  which  I  am  contending? 
It  must  at  once  be  admitted  that  the  existence  of  an  idle  rich 
class  shows  that  the  classes  of  producers  and  consumers  are  not 
necessarily  and  always  conterminous ;  but  this  is  not  the  issue 
I  have  raised,  but  the  dependence  of  consumptive  power  upon 
production,  and  of  Demand  upon  Supply.  Let  me  here  ex- 
plain that  by  "consumptive  power"  I  mean,  as  I  apprehend 
those  who  employ  it  in  this  controversy  mean,  not  the  mere 

3 


34  SUPPLY  AND  DEMAND. 

physical  capacity  to  consume,  but  the  economic  conditions 
which  minister  to  the  physical  capacity.  Understanding  it  in 
this  sense,  then,  I  contend  that  in  the  case  of  the  idle  rich,  as 
in  all  other  cases,  consumptive  power  is  limited  and  measured 
by  production,  and  Demand  by  Supply.  To  perceive  this,  we 
have,  in  truth,  only  to  dip  just  below  the  surface.  Whence  is 
their  purchasing  power  derived  ?  It  does  not  descend  to  them 
from  the  skies ;  nor  is  it  obtained  by  submarine  telegraph  di- 
rect from  California  or  Australia ;  nor  is  its  existence  exhaust- 
ively accounted  for  by  the  presence  of  certain  figures  on  the 
credit  side  of  their  accounts  in  their  bankers'  books.  Let  us 
suppose  the  class  in  question  to  be  represented  by  certain  land- 
lords, mortgagees,  and  fund-holders.  In  the  first  two  cases  their 
purchasing  power,  that  is  to  say,  their  rents  and  interest,  would, 
of  course,  be  derived  from  the  sale  of  certain  agricultural  prod- 
ucts; in  the  last,  also  from  the  sale  of  products — the  products, 
namely  of  those  who  pay  the  taxes — in  all  cases  from  produc- 
tion and  supply.  The  phenomenon  is  merely  one  of  a  transfer 
of  purchasing  power  from  one  set  of  people  to  another,  who  in 
virtue  of  contracts  are  entitled  to  receive  it.  If  the  idle  land- 
lords, mortgagees,  and  fund-holders  were  to  vanish  into  space, 
would  the  demand  of  the  community  diminish?  Certainly 
not,  so  long  as  production  and  supply  continued  as  before. 
The  only  difference  would  be  that  different  persons  would  now 
consume  and  determine  the  direction  of  demand.  It  was 
formerly  certain  idle  landlords,  mortgagees,  and  fund-holders: 
it  would  now  be  certain  producers  and  tax-payers,  who,  find- 
ing themselves  in  possession  of  an  enlarged  purchasing  power, 
would,  I  think  we  may  assume,  know  how  to  use  it.  That 
useful  function,  therefore,  which  some  profound  writers  fancy 
they  discover  in  the  abundant  expenditure  of  the  idle  rich, 
turns  out  to  be  a  sheer  illusion.  Political  Economy  furnishes 
no  such  palliation  of  unmitigated  selfishness.  Not  that  I  would 
breathe  a  word  against  the  sacredness  of  contracts.    But  I  think 


PRODUCTION  AND  CONSUMPTION.  35 

it  is  important,  on  moral  no  less  than  on  economic  grounds, 
to  insist  upon  this,  that  no  public  benefit  of  any  kind  arises 
from  the  existence  of  an  idle  rich  class.  The  wealth  accumu- 
lated by  their  ancestors  or  others  on  their  behalf,  where  it  is 
employed  as  capital,  no  doubt  helps  to  sustain  industry;  but 
what  they  consume  in  luxury  and  idleness  is  not  capital,  and 
helps  to  sustain  nothing  but  their  own  unprofitable  lives.  By 
all  means  they  must  have  their  rents  and  interest,  as  it  is  writ- 
ten in  the  bond  ;  but  let  them  take  their  proper  place  as  drones 
in  the  hive,  gorging  at  a  feast  to  which  they  have  contributed 
nothing. 

One  more  illustration  of  the  same  fallacy  will  not  perhaps 
be  superfluous.  A  colony  of  rich  persons  establish  themselves 
in  a  foreign  country,  where  they  practice  no  useful  industry  or 
art,  but  simply  expend  and  consume.  We  may  take  as  our 
example  the  English  and  other  foreign  residents  at  such  resorts 
as  Pau,  Nice,  and  Rome.  Whether  such  residents  confer  ben- 
efit of  any  sort  on  the  people  among  whom  they  settle  is  a 
point  which  I  do  not  now  raise :  I  may  possibly  find  occasion 
to  consider  it  farther  on.  But  what  I  wish  now  to  make  clear 
is,  that,  if  any  benefit  does  arise  from  the  expenditure  of  such 
people,  it  is  no  instance  of  a  good  accruing  to  a  community 
from  Demand  as  distinct  from  and  independent  of  Supply.  The 
demand  of  those  foreign  residents  owes  its  efficacy  (whatever 
that  may  amount  to)  to  the  supply  by  which  it  is  supported, 
as  certainly  as  if  they  each  and  all  rented  farms  and  lived  upon 
the  direct  produce  of  their  own  exertions;  for  how  is  their 
purchasing  power  conveyed  to  them  ?  They  receive  it  most 
probably  in  circular  notes  or  bills,  which  are  perhaps  cashed 
in  coin;  but  how  are  these  instruments  finally  liquidated? 
Simply  in  commodities  sent  from  England  or  the  other  coun- 
tries from  which  the  residents  in  question  come.  In  other 
words,  every  increase  in  the  demand  of  English  people  resid- 
ing in  France  for  French  goods  is  accompanied  and  rendered 


36  SUPPLY  AND  DEMAND. 

possible  by  an  increase  in  the  supply  of  English  commodities 
to  the  French  people.  There  is  no  other  way  in  which  in  the 
long  run  it  can  be  supported — a  ftict,  by-the-way,  which  throws 
a  curious  light  on  the  absurdities  of  Protection.  None  are  so 
anxious  to  encourage  such  idle  I'esidents  from  foreign  countries 
as  protectionists ;  but  while  eager  to  accomplish  this  object, 
they  do  all  in  their  power  to  render  it  impossible.  They  would 
have  English  visitors  swarming  in  their  capitals,  and  spending 
there  their  money  on  French  products;  but  they  would  at  the 
same  time  put  under  interdict  the  only  possible  means  by 
which  in  the  long  run  Englishmen  can  meet  their  .expenses. 
The  protective  system  is  thus  an  attempt  to  sever  Demand  and 
Supply,  and  to  render  them  independent  of  each  other — a  feat 
which  will  be  performed  when  the  circle  is  squared. 

§  6.  I  have  so  far  spoken  of  Demand  and  Supply  as  general 
facts,  as  related  not  to  particular  commodities  or  services,  but 
to  commodities  and  services  in  general.  I  proceed  now  to  con- 
sider them  as  they  stand  related  to  particular  commodities  and 
services.  And  here  we  must  in  the  first  place  note  that  that 
fundamental  identity  and  mutual  interdependence  which  have 
been  found  to  characterize  the  phenomena  in  the  light  in  which 
we  have  hitherto  regarded  them,  are  no  longer  observable  when 
they  are  considered  with  reference  to  particular  commodities. 
Thus,  as  I  have  shown,  it  is  impossible  for  the  general  demand 
of  a  community  to  increase  or  diminish  save  through  a  corre- 
sponding increase  or  diminution  of  the  general  supply  of  com- 
modities in  that  community;  but  it  is  perfectly  possible  that 
the  demand  for  a  particular  commodity  or  service  should  in- 
crease or  diminish,  the  supply  undergoing  no  corresponding 
change;  and,  as  every  one  will  recognize,  such  failure  of  cor- 
respondence between  Supply  and  Demand  is  the  most  common 
of  all  occurrences.  In  truth,  it  but  rarely  happens  that  the 
supply  of  any  commodity  remains  for  any  length  of  time  in 


OF  FABTICULAB  ARTICLES.  37 

perfect  accordance  with  the  demand  for  it.  What  we  find  is  a 
pretty  constant  state  of  fluctuation  ;  the  demand  sometimes  in 
excess  of  the  supply ;  the  supply  sometimes  in  excess  of  the 
demand ;  and  the  alterations  in  the  relation  indicated  by  par- 
allel alterations  in  the  prices  of  the  commodity  so  affected. 

I  have  spoken  of  supply  corresponding  with,  or  being  greater 
or  less  than,  demand  in  the  case  of  a  given  commodity.  There 
is  no  expression  in  more  frequent  use  in  commercial  and  eco- 
nomic discussion ;  and  it  is  probable  that  most  people  will 
think  that  it  stands  in  need  of  no  elucidation.  But  the  slight- 
est reflection  will  show  that  its  meaning  is  by  no  means  so 
clear  as  it  might  at  first  sight  be  considered.  What  is  meant 
by  the  supply  of  a  given  commodity  being  equal  to  the  de- 
mand for  it?  The  demand  varies  with  the  price;  and  so  does 
the  supply.  It  is  evident,  therefore,  that,  to  give  meaning  to 
our  assertion,  it  must  be  understood  as  made  with  reference  to 
some  assumed  price;  but  what  price?  This  is  a  point  which 
is  not  at  once  apparent. 

Again,  supposing  this  difficulty  got  over,  and  that  we  have 
settled  at  what  price  Demand  and  Supply  are  to  be  taken,  de- 
mand at  a  given  price  may  be  measured  either  by  the  quantity 
of  purchasing  power  offered,  or  by  the  quantity  of  the  commod- 
ity demanded.  Which  standard  are  we  to  adopt?  I  have 
already  stated  my  view  as  to  the  proper  sense  of  "demand;'' 
nor  do  I  see  an}^  necessity  for  departing  in  this  context  from 
the  meaning  I  have  contended  for.  According  to  that  view, 
as  Supply  would  be  measured  by  the  quantity  of  the  commod- 
ity offered,  so  Demand  would  be  measured  by  the  quantity  of 
purchasing  power  offered  ;  and  the  "correspondence"  (which  I 
think  would  be  a  better  word  than  "  equality  ")  of  Supply  with 
Demand  at  a  given  price  would  mean  such  a  state  of  Demand 
and  Supply  as  would  result,  on  the  one  hand,  in  the  absorption 
of  the  purchasing  power  forth-coming  at  this  price  by  the  sup- 
ply at  the  same  price ;  and,  on  the  other  hand,  in  the  absorp- 


38  SUPPLY  AXD  DEMAND. 

tion  of  the  supply  by  the  purchasing  power;  while  the  non- 
correspondence  of  Supply  and  Dennand  would  mean  the  exist- 
ence of  an  unsatisfied  residuum  on  either  side.  This,  I  confess, 
is  the  sense  of  the  phrase  which  I  should  myself,  on  scientific 
grounds,  prefer.  I  have  admitted,  however,  that  there  are  oc- 
casions in  which  "demand"  may  conveniently  be  employed  in 
other  senses;  and  this  perhaps  is  one  of  them.  At  all  events 
it  is  certain  that,  understanding  Demand  in  this  context  as 
measured  by  the  quantity  demanded,  the  result  will  not  be  af- 
fected by  the  change  of  standard.  When  Supply  corresponds 
with  Demand  in  the  one  sense,  it  will  correspond  with  it  in  the 
other;  and  as  the  latter,  that  is  to  say  Demand,  as  measured 
by  quantity  demanded,  is  perhaps  the  more  familiar  concep- 
tion where  the  problem  has  to  do  with  particular  commodities, 
it  will  on  the  whole,  perhaps,  be  more  convenient  to  adopt  this 
sense  for  the  purposes  of  this  particular  discussion.  I  shall 
therefore  understand  equality  or  correspondence  of  Demand 
and  Supply  at  a  given  price,  when  particular  commodities  are 
in  question,  as  meaning  equality  or  correspondence  of  quantity 
demanded  with  quantity  supplied  at  that  price. 

But  we  have  got  to  determine  what  is  the  price  assumed  or 
contemplated  in  statements  regarding  the  equality  or  inequal- 
ity of  Supply  and  Demand.  To  resolve  this  point,  two  sorts 
of  such  statements  must  be  considered.  We  may  assert  the 
equality  or  inequality  of  Demand  and  Supply  either  with  ref- 
erence to  a  particular  occasion,  or  with  reference  to  a  continu- 
ing state  of  things.  We  may  say,  for  example,  that  the  de- 
mand for  wheat  exceeded  the  supply  in  a  particular  market; 
or  we  may  say  that  the  demand  for  meat  has  for  some  time 
exceeded,  and  is  likely  for  some  time  longer  to  exceed,  the 
supply  of  that  article.  In  the  former  case,  it  seems  to  me,  the 
price  assumed,  so  far  as  people  speak  with  distinct  meaning, 
would  always  be  the  price  current  in  the  particular  market ; 
and  the  statement  would  mean  that  there  were  people  in  that 


OF  PARTICULAR  ARTICLES.  39 

market  who  at  the  current  price  would  have  purchased  more 
wheat  had  it  been  at  that  price  obtainable.  I  am  aware  that, 
in  assuming  the  possibility  of  such  an  occurrence  as  a  market 
price  which  does  not  equalize  Supply  and  Demand,  I  am  put- 
ting myself  in  conflict  with  a  celebrated  theory.  I  hope,  how- 
ever, afterward  to  justify  this  boldness.  For  the  moment  I  as- 
sume that  the  price  current  in  the  particular  market  is  the 
price  with  reference  to  which  statements  of  the  kind  we  are 
considering  are  made ;  and  common  language  certainly  pre- 
supposes the  possibility  of  a  divergence  of  Demand  and  Sup- 
ply at  this  price.  But  how  with  regard  to  assertions  of  the 
other  kind  indicated,  where  we  declare  that,  as  a  continuing 
state  of  things,  the  demand  for  a  commodity  is  in  excess  of  the 
supply  of  it — shall  we  say,  following  the  analogy  of  the  expla- 
nation just  given,  that  the  price  here  assumed  is  the  price  cur- 
rent during  the  period  to  which  the  remark  applies ;  and  that 
the  meaning  is  that  the  demand  at  that  price  has  been  and  is 
likely  to  be  in  excess  of  the  supply  ?  If  we  attempt  to  deal 
with  any  actual  case  we  shall  find  that  this  explanation  will 
not  serve  us.  For  example,  most  persons  acquainted  with  the 
present  state  of  the  iron  trade  would  say  that  the  demand  for 
iron  at  the  present  time — meaning,  not  in  this  or  that  market, 
but  in  the  country  generally  and  over  a  period  of  some  dura- 
tion— is  greatly  in  excess  of  the  supply,  and  would  point  to 
the  advance  in  price  as  evidence  of  this.  Now  it  is  certain 
that,  in  the  opinion  of  those  most  competent  to  form  an  opin- 
ion, in  the  opinion  of  dealers  and  speculators  in  the  article,  the 
demand  for  iron  in  the  country  at  the  present  time  is  not  in 
excess  of  the  supply  of  it  at  existing  prices;  for  did  they  think 
so,  they  would  at  once  by  purchases  raise  the  price  beyond  its 
present  level.  In  truth,  the  precise  function  which  such  per- 
sons perform  is  that  of  adapting  demand  to  supply  by  acting 
on  price ;  and,  however  the  adaptation  may  fail  in  particular 
markets,  it  is  impossible  that,  as  a  phenomenon  of  some  dura- 


40  SUPPLY  AND  DEMAND. 

tion,  the  demand  at  existing  prices  should  remain,  and  be 
known  to  be,  in  excess  of  the  supply.  How,  then,  are  we  to 
deal  with  the  assertion  which  undoubtedly  would  be  made  by 
those  very  persons?  It  is  perhaps  not  improbable  that  most 
of  those  who  make  it  have  not  very  clearly  defined  their  mean- 
ing. Still  it  would  be  unreasonable  to  assume  that,  where  so 
many  people,  experts  in  the  matter  in  hand,  concur  in  mak- 
ing the  same  statement,  their  assertion  is  absolutely  without 
meaning.  I  shall  certainly  not  presume  to  find  a  meaning  for 
any  one,  but  I  venture  to  lay  down  this  proposition,  that,  in 
order  to  render  such  statements  as  those  of  which  I  have  given 
examples  at  once  significant  and  true,  demand  must  be  under- 
stood as  existing  at  some  price  other  than  that  actually  pre- 
vailing in  the  markets;  and  if  I  am  asked  to  say  what  that 
price  is,  I  answer,  the  "  normal  price  " — the  price  which,  in  the 
absence  of  disturbing  causes,  people  consider  would  be  the 
price  of  the  commodity.  Accordingly,  the  sense  in  which  I 
understand  statements  of  the  kind  under  consideration,  which 
apply  not  to  particular  markets  but  to  a  state  of  things  for 
some  time  in  existence,  is  as  expressing  the  result  of  a  com- 
parison between  demand  taken  as  it  ivould  exist  at  the  normal 
price,  and  supply  either  such  as  it  would  be  at  that  same  price, 
or  such  as  it  actually  is.  Thus  understood,  such  statements  be- 
come significant;  and,  if  founded  on  knowledge  of  the  facts  in 
question,  convey  information  of  a  really  important  kind.  The 
result,  then,  of  this  verbal  but  necessary  discussion  may  be 
thus  summed  up : 

1st.  Supply  and  Demand,  when  spoken  of  with  reference  to 
particular  commodities,  must,  if  our  statements  are  to  be  sig- 
nificant, be  understood  to  mean  Supply  and  Demand  at  a  given 
price ;  the  comparison  of  Supply  and  Demand  at  that  price, 
being  made  by  comparing  the  quantity  of  the  commodity  sup- 
plied with  the  amount  of  purchasing  power  offered,  or  with 
the  quantity  of  the  commodity  demanded.     For  considerations 


OF  PARTICULAR  ARTICLES.  41 

of  practical  convenience,  the  latter  measure  of  Demand  is  em- 
ployed in  this  particular  discussion. 

2d.  Where  statements  respecting  the  supply  and  demand  of 
particular  commodities  have  reference  to  particular  markets, 
the  price  assumed  as  that  at  which  Demand  and  Supply  are 
compared  is  the  price  current  in  that  market. 

3d.  Where  such  statements  have  reference  to  the  country  at 
large  and  to  a  continuing  state  of  things,  then  the  price  as- 
sumed as  that  at  which  Demand  is  measured  is  the  normal 
price  of  the  commodity,  while  Supply  is  considered  as  meas- 
ured either  at  this  or  at  the  actual  price.  The  comparison  in- 
stituted is  thus  between  Demand  at  the  normal  price,  and  Sup- 
ply either  at  the  normal  or  at  actual  prices. 

§  7.  The  meaning  of  this  part  of  our  phraseology  being  thus 
ascertained,  I  proceed  to  lay  down  what  seems  to  me  the  fun- 
damental law  of  Demand  and  Supply  considered  in  connection 
with  particular  commodities.  It  is  as  follows:  The  supply 
of  a  commodity  always  tends  to  adapt  itself  to  the  demand  at 
the  normal  price.  I  may  here  say  briefly,  that  by  the  normal 
price  of  a  commodity  I  mean  that  price  which  suffices,  and  no 
more  than  suffices,  to  yield  to  the  producers  what  is  considered 
to  be  the  average  and  usual  remuneration  on  such  sacrifices  as 
they  undergo;  and  the  statement  is  that  the  supply  of  each 
commodity  tends  to  adapt  itself  to  the  demand  at  this  price. 
That  it  does  so  is  the  direct  consequence  of  the  motives  which 
induce  people  to  engage  in  productive  industry,  and  which  at- 
tract them,  so  far  as  circumstances  permit,  toward  those  occupa- 
tions which  offi^r  the  largest  rewards  in  proportion  to  the  sac- 
rifices undergone.  It  follows  from  this  that,  where  the  price 
of  a  commodity  is  above  the  normal  level,  and  where  con- 
sequently the  producers  are  reaping  more  than  average  rewards, 
more  producers  will  be  drawn  to  that  employment,  and  the 
supply  of  the  commodity  will  be  increased.     But  the  increase 


4a  SUPPLY  AND  DEMAND. 

of  supply,  by  the  competition  for  sales,  will  tend  to  lower  price, 
and  thus  to  bring  it  down  toward  the  normal  level.  If  the 
increase  of  supply  is  not  sufficient  to  reduce  the  market  price 
quite  to  the  normal  level,  then,  under  the  influence  of  the  same 
industrial  motives,  supply  will  be  further  increased ;  and  the 
process  will  go  on  till  this  result  is  accomplished.  On  the 
other  hand,  if  the  stimulus  to  production  carry  the  movement 
too  far  and  price  fall  below  the  normal  level,  motives  of  the 
opposite  kind  will  at  once  come  into  play  to  curtail  production, 
and  the  price  will  rise  till  the  normal  level  be  once  more  reach- 
ed. Such  is  the  law  of  Supply  and  Demand  in  relation  to  par- 
ticular commodities:  it  is  described  by  Adam  Smith  under  the 
figure  of  a  gravitation  of  market  toward  natural  price ;  but, 
however  described,  it  is  fundamental  in  this  part  of  our  sub- 
ject, and  is  the  constant  assumption  running  through  all  reason- 
ings which  have  to  do  with  value  and  price.  It  is  not,  how- 
ever, necessary  to  advert  to  its  bearings  further  at  present; 
these  will  sufficiently  appear  in  the  course  of  the  following 
discussions. 

I  recapitulate  briefly  the  results  of  the  present  chapter: 

I.  Demand  and  Supply,  considered  as  general  flxcts,  are  not 
independent  phenomena,  but  essentially  the  same  phenomena 
regarded  from  different  points  of  view ;  consequently  general 
Demand  can  not  increase  or  diminish,  except  in  constant  rela- 
tion with  general  Supply.  All  notions  and  doctrines  there- 
fore that  proceed  upon  the  contrary  assumption  are  unfounded 
and  fallacious. 

II.  Demand  and  Supply,  considered  with  reference  to  par- 
ticular commodities,  may  increase  or  diminish  (in  the  sense  ex- 
plained) in  relation  to  each  other;  but  in  all  their  mutations 
they  obey  this  law:  Supply  always  tends  to  adapt  itself  to 
Demand  at  the  normal  price  of  the  commodity. 


CHAPTER  III. 

NOEMAL    VALUE. 

§  1.  The  attribute  of  normal  or  usual  value  implies  system- 
atic and  continuous  production.  We  can  not  predicate  normal 
value  of  a  commodity  of  which  the  supply  is  limited  and  can 
not  be  increased — for  example,  of  a  picture  of  Turner's;  be- 
cause, although  it  would  be  possible  from  a  number  of  sales  of 
such  pictures  to  Strike  an  average,  this  average  would  merely 
represent  the  mean  of  fluctuations  uncontrolled  by  any  presid- 
ing principle,  and  so,  as  having  no  tendency  to  keep  themselves 
within  any  certain  bounds,  incapable  of  being  made  the  ground 
of  expectation  as  to  the  course  of  future  prices.  But  when  a 
commodity  is  systematically  and  continuously  produced,  the 
existence  of  a  normal  value  soon  reveals  itself.  It  is  perceived 
that,  however  greatly  the  price  may  vary  from  time  to  time, 
the  variations  do  not  occur  at  random,  but  obey  a  hidden  prin- 
ciple, and  tend  to  conform  to  a  certain  rule.  The  price  of 
wheat  may  be  unusually  high  one  year,  but  this  at  once  calls 
into  action  forces  which  control  the  advance,  and  ultimately 
bring  back  the  price  to  its  usual  level ;  or  the  price  may  be 
exceptionally  low,  and  then  the  same  forces  are  ranged  on  the 
opposite  side,  and  the  price  rises.  In  this  way  the  fluctuations 
of  the  market  are  kept  within  certain,  not  perhaps  precisely 
determinable,  but  still  real,  limits,  witli  a  constant  tendency  to 
approach  a  central  point — the  point  of  "  normal  value  "  of  which 
we  are  in  quest. 

I  have  remarked  that  an  average  of  the  actual  sales  effected 
of  a  commodity,  that  is  to  say,  of  its  market  prices,  does  not 


44  NORMAL  VALUE. 

necessarily  represent  its  normal  price  or  value,  because  the 
commodity  may  exist  under  conditions  which  do  not  supply 
any  controlling  principle  to  its  fluctuations,  and  consequently 
do  not  develop  any  tendency  in  these  to  revolve  round  a  cen- 
tral point.  But  it  is  still  true  that,  where  the  conditions  for 
evolving  a  normal  value  do  exist,  that  is  to  say,  where  a  com- 
modity is  systematically  and  continuously  produced,  the  nor- 
mal value  will  generally  be  coincident  with  the  average  of  act- 
ual sales,  if  only  the  number  of  instances  taken  be  sufficient  to 
eliminate  the  effects  of  what  we  may  call  disturbing  causes — 
causes,  that  is  to  say,  which  interfere  with  the  adaptation  of 
supply  to  demand.*  The  number  of  instances  necessary  to  ef- 
fect such  elimination  will  vary  greatly  with  the  nature  of  the 
commodity.  It  will  in  general  be  least  in  articles  of  ordinary 
manufacture,  much  greater  in  those  of  raw  produce,  and  great- 
est of  all  in  products  of  the  animal  kingdom.  These,  however, 
are  points  which  will  be  more  conveniently  elucidated  in  con- 
nection with  the  subject  of  market  values. 

One  word  more  of  explanation.  Normal  values,  though,  in 
contrast  with  market  values,  they  may  not  improperly  be  de- 
scribed as  average  or  permanent  values,  must  not  be  supposed 
to  represent  any  thing  absolutely  fixed  or  constant  in  the  ex- 
change relation  of  commodities.  There  is  no  such  fixedness 
or  constancy  to  be  found  in  that  relation.  All  that  we  can 
properly  understand  by  the  permanency  predicated  of  such  val- 
ues is  that  they  remain  the  same  so  long  as  the  conditions  of 
production  remain  the  same.  In  point  of  fact,  the  conditions 
of  production  of  all  commodities  undergo  change,  and  those  of 
most  commodities  frequent  and  extensive  change.  In  general, 
however,  these  changes,  where  they  are  of  much  importance, 
occur  at  intervals  of  some  duration,  and  in   the  intervening 


*  For  the  precise  sense  in  wliicli  these  words  are  used  the  reader  is  referred  to 
ante  pp.  40,  41. 


COST  OF  PRODUCTION.  45 

periods  the  normal  price  remains  constant.  The  centre  about 
which  market  prices  oscillate  is  thus  not  a  fixed,  but  a  mov- 
able centre ;  moving,  however  (as  will  be  fully  set  forth  in  a 
subsequent  chapter*),  for  the  most  part  in  constant  directions, 
determined  by  the  character  of  the  commodity  and  the  cir- 
cumstances under  which  it  is  produced.  Thus  in  most  manu- 
factured goods  the  course  of  normal  prices  in  this  country  has 
for  some  centuries  been  steadily  downward;  while  on  the  oth- 
er hand,  the  normal  prices  of  raw  produce,  and  more  particu- 
larly of  produce  of  the  animal  kingdom,  have  pretty  constant- 
ly risen. 

So  far  as  to  the  character  of  the  phenomenon  which  now 
claims  our  attention.  It  remains  to  consider  the  conditions 
which  determine  it. 

§  2.  The  current  theories  of  value  connect  normal  value 
(called  by  Adam  Smith  and  Eicardo  "  natural  value,"  and  by 
Mr.  Mill  "necessary  value,"  but  best  expressed,  it  seems  to 
me,  by  the  term  which  I  have  usedf)  with  one  set  of  condi- 
tions only,  those,  namely,  comprised  under  the  phrase  "cost 
of  production ;"  and  some  writers  would,  under  this  notion, 
distinguish  such  values  as  "cost  values."  But  this,  it  seems 
to  me,  is  to  take  a  much  too  limited  view  of  the  range  of  this 
phenomenon.  The  essence  lies  in  the  tendency  of  the  ex- 
changes of  the  market  to  gravitate  toward  a  central  point; 
wherever  that  tendency  is  observable,  we  can  predicate  of  the 
commodities  which  exhibit  it  the  possession  of  a  central,  usual, 
or  normal  value.  Now,  to  go  no  farther  at  present,  such  a 
tendency  exists  in  the  relative  values  of  the  commodities  ex- 
changed by  different  nations,  or,  as  they  are  called,  "  interna- 


*  See  chap.  v.  of  tliis  Part. 

t  I  have  adopted  the  term  from  M.  Cherbulicz's  excellent  work,  "Precis  de  la 
Science  Economique. " 


46  NORMAL  VALUE. 

tional  values."  In  other  words,  trading  countries  exchange 
their  productions  in  certain  proportions,  which,  in  any  given 
state  of  industr}^,  manifest  the  condition  of  normality.  Devia- 
tions may,  and  do  occur,  but  forces  are  in  existence  which 
tend  constantly  to  bring  back  the  proportions  to  the  normal 
line.  International  values,  however,  are  admittedly — or  at  all 
events  are  demonstrably — not  governed  by  cost  of  production, 
and  we  have  thus  normal  values  which  are  not  connected 
with  cost,  but  come  under  thc' influence  of  some  other  princi- 
ple. And  I  shall  afterward  have  occasion  to  show  that,  even 
in  domestic  exchanges,  cost  of  production  is  by  no  means  co- 
extensive with  the  range  of  this  phenomenon. 

Cost  of  production,  however,  is  undoubtedly  the  principal 
and  most  important  of  the  conditions  on  which  normal  value 
depends.  Not  only,  as  will  be  shown,  does  it  absolutely  de- 
termine that  relation  over  a  very  wide  field  of  exchange  trans- 
actions, but  over  perhaps  a  still  wider  it  exercises,  not  a  de- 
cisive, but  a  powerful  influence,  and  within  certain  limits  con- 
trols the  results.  It  is  therefore  necessary,  at  the  outset  of 
our  discussion,  to  ascertain  the  true  nature  of  Cost  of  Produc- 
tion, a  clear  perception  of  which,  I  may  observe,  quite  irre- 
spective of  the  theory  of  value,  is  indispensable  for  the  solu- 
tion of  most  of  the  problems  of  production  and  distribution. 

The  following  is  the  analysis  of  Cost  of  Production  given 
by  Mr.  Mill,  and  which,  so  far  as  I  know,  has  been  acquiesced 
in,  either  expressly  or  implicitly,  by  economists  alike  in  this 
and  in  otlier  countries : 

"The  component  elements  of  Cost  of  Produetion  luive  been  set  forth 
in  the  first  part  of  this  inrpiirv.  Tlie  ])riiui])h'  of  them,  and  so  mucli  the 
principle  as  to  l>e  nearly  the  sole,  we  found  to  be  Labor.  What  the  pro- 
duction of  a  tiling  costs  to  its  producer,  or  its  series  of  producers,  is  the 
labor  expended  in  producing;'  it.  If  we  consider  as  the  producer  llie 
(capitalist  who  makes  tiie  advances,  the  word  '  labor'  may  be  replaced  by 
the  word '  wages :'  what  tlie  produce  costs  to  him,  is  the  wages  which 


COST  OF  PRODUCTION.  47 

he  has  had  to  pay.  At  the  first  glance,  indeed,  this  seems  to  be  only  a 
part  of  his  outlay,  since  he  has  not  only  paid  wages  to  laborers,  but 
has  likewise  provided  them  with  tools,  materials,  and  jjerhaps  buildings. 
These  tools,  materials,  and  buildings,  however,  were  produced  by  labor 
and  capital;  and  their  value,  like  that  of  the  article  to  the  production 
of  which  they  are  subservient,  depends  on  cost  of  production,  which 
again  is  resolvable  into  labor.  The  cost  of  production  of  broadcloth  does 
not  wholly  consist  in  the  wages  of  weavers ;  which  alone  are  directly 
paid  by  the  cloth  manufacturer.  It  consists  also  of  the  wages  of  spin- 
ners and  wool-combers,  and,  it  may  be  added,  of  shepherds,  all  of  which 
the  clothier  has  paid  for  in  tlie  price  of  yarn.  It  consists,  too,  of  the 
wages  of  builders  and  brick-makers,  which  he  has  reimbursed  in  the  con- 
tract price  of  erecting  his  factory.  It  partly  consists  of  the  wages  of  ma- 
chine-makers, iron-founders,  and  miners.  And  to  these  must  be  added 
the  wages  of  the  carriers  who  transported  any  of  the  means  and  appli- 
ances of  the  ])roduction  to  the  place  where  they  were  to  be  used,  and  the 
product  itself  to  the  place  where  it  is  to  be  sold."  .  .  .  .  "  Thus  far  of  la- 
bor, or  wages,  as  an  element  in  cost  of  production.  But  in  our  analysis, 
in  the  First  Book,  of  the  requisites  of  production  we  found  tliat  there  is 
another  necessary  element  in  it  besides  labor.  There  is  also  capital ;  and 
this  being  the  result  of  abstinence,  the  produce,  or  its  value,  must  be 
sufficient  to  remunerate,  not  only  all  the  lal)or  required,  but  the  absti- 
nence of  all  the  persons  by  whom  the  remuneration  of  the  different  class- 
es of  laborers  was  advanced.  The  return  for  abstinence  is  Profit.  And 
profit,  we  have  also  seen,  is  not  exclusively  the  surplus  remaining  to 
the  cai^italist  after  he  has  been  compensated  for  his  outlay,  but  forms,  in 
most  cases,  no  unimportant  part  of  the  outlay  itself  The  flax-sjjinner, 
part  of  whose  expenses  consists  of  the  purchase  of  flax  and  of  machinery, 
l\as  had  to  pay,  in  their  price,  not  only  the  wages  of  the  labor  by  which 
the  flax  was  grown  and  the  machinery  made,  but  the  profits  of  the  grow- 
er, the  flax-dresser,  the  miner,  the  iron-founder,  and  the  machine-maker. 
All  these  profits,  together  with  those  of  the  siiiuner  himself,  were  again 
advanced  by  the  weaver,  in  the  price  of  his  material — linen  yarn ;  and 
along  with  them  the  profits  of  a  fresh  set  of  machine-makers,  and  of  the 
miners  and  iron-workers  who  supplied  them  wnth  their  metallic  mate- 
rial. All  these  advances  form  part  of  the  cost  of  production  of  linen. 
Profits,  therefore,  as  well  as  wages,  enter  into  the  cost  of  productioLi 
which  determines  the  value  of  the  produce."  .... 
"  Profits,  however,  may  enter  more  largely  into  the  conditions  of  pro- 


48  NORMAL    VALUE. 

duction  of  one  commodity  than  of  another,  even  thougli  there  be  no  dif- 
ference in  the  rate  of  profit  between  the  two  employments.  The  one 
commodity  may  be  called  upon  to  yield  profit  during  a  longer  jjcriod  of 
time  than  the  other.  The  example  by  which  this  case  is  usually  illus- 
trated is  that  of  wine.  Suppose  a  quantity  of  wine  and  a  quantity  of 
cloth  made  by  equal  amounts  of  labor,  and  that  labor  paid  at  the  same 
rate.  The  cloth  does  not  improve  by  keejDing;  the  wine  does.  Sup- 
Ijose  that,  to  attain  the  desired  quality,  the  wine  requires  to  be  kept  five 
years.  The  producer  or  dealer  will  not  keep  it,  unless  at  the  end  of  five 
years  he  can  sell  it  for  as  much  more  than  the  cloth  as  amounts  to  five 
years'  profit  accumulated  at  comj^ound  interest.  The  wine  and  the  cloth 
were  made  by  the  same  oi'igiual  outlay.  Here,  then,  is  a  case  in  which 
the  natural  values,  relatively  to  one  another,  of  two  commodities,  do  not 
conform  to  their  cost  of  production  alone,  but  to  their  cost  of  production 
plus  something  else.  Unless,  indeed,  for  the  sake  of  generality  in  the 
expression,  we  include  the  profit  which  the  wine-merchant  foregoes  dur- 
ing the  five  years  in  the  cost  of  production  of  the  wine  :  looking  upon  it 
as  a  kind  of  additional  outlay,  over  and  above  his  other  advances,  for 
which  outlay  he  must  be  indemnified  at  last."* 

And  finally  he  thus  sums  up : 

"  Cost  of  Production  consists  of  several  elements,  some  of  which  are 
constant  and  universal,  others  occasional.  The  universal  elements  of 
cost  of  production  are  the  wages  of  the  labor  and  the  profits  of  the  cap- 
ital. The  occasional  elements  are  taxes,  and  any  extra  cost  occasioned 
l)y  a  scarcity  value  of  some  of  the  requisites."t 

§  3.  Such  is  the  view  of  Cost  of  Production  which  must  be 
considered  as  now  generally  accepted  by  economists.  But  in 
spite  of  the  great  authority  properly  attaching  to  any  doctrine 
propounded  by  Mr.  Mill,  and  enhanced  as  this  is  in  the  pres- 
ent instance  by  the  general  concurrence  of  economists,  I  am 
compelled  to  dissent  from  it.  It  seems  to  me  that  the  concep- 
tion of  cost  which  it  suggests  is  radically  unsound,  confound- 

*  "Principles  of  Political  Economy," book  iii.,  chap.  iv..  §  1,  4,  5. 
t  Ibid.,  book  iii.,  chap,  vi.,  §  1. 


''COST"  AS  WAGES  AND  PROFIT.  49 

ing  things  in  their  own  nature  distinct  and  even  antithetical, 
and  setting  in  an  essentially  false  light  the  incidents  of  pro- 
duction and  exchange;  further,  I  think  it  will  appear  that  it 
leads  to  practical  errors  of  a  serious  kind,  not  merely  with  re- 
gard to  value,  but  also  with  regard  to  some  other  important 
doctrines  of  the  science. 

Of  all  ideas  within  the  range  of  economic  speculation,  the 
two  most  profoundly  opposed  to  each  other  are  cost  and  the 
reward  of  cost  —  the  sacrifice  incurred  by  man  in  productive 
industry,  and  the  return  made  by  nature  to  man  upon  that 
sacrifice.  All  industrial  progress  consists  in  altering  the  pro- 
portion between  these  two  things;  in  increasing  the  remuner- 
ation in  relation  to  the  cost,  or  in  diminishing  the  cost  in  re- 
lation to  the  remuneration.  Cost  and  remuneration  are  thus 
economic  antitheses  of  each  other ;  so  completely  so,  that  a 
small  cost  and  a  large  remuneration  are  exactly  equivalent 
expressions.  Now,  in  the  analysis  of  cost  of  production  which 
I  have  quoted,  these  two  opposites  are  identified ;  and  cost, 
which  is  sacrifice,  cost,  which  is  what  man  paj^s  to  nature  for 
her  industrial  rewards,  is  said  to  consist  of  wages  and  profits, 
that  is  to  say,  of  what  nature  yields  to  man  in  return  for  his 
industrial  sacrifices.  The  theory  thus  in  its  simple  statement 
confounds  opposite  facts  and  ideas,  and  further  examination 
will  show  that  it  involves  conclusions  no  less  perplexed,  and 
in  conflict  with  doctrines  the  most  received. 

For,  first,  if  the  analysis  in  question  be  accepted,  and  wages 
and  profits  be  taken  as  the  constituents  of  cost  of  production, 
this  conclusion  follows :  that  the  cost  of  producing  commodi- 
ties, taking  industry  as  a  whole,  is  a  constant  condition,  in- 
capable, however  great  or  universal  the  progress  of  industrial 
improvement,  of  undergoing  change.  Suppose,  for  example, 
the  general  productiveness  of  industry  were  increased ;  this 
would  mean  that  the  aggregate  results  of  industry  in  return 
for  a  given  exertion  of  labor  and  abstinence  were  increased ; 

4 


50  NORMAL   VALUE. 

in  other  words,  that  the  fund  from  which  wages  and  profits 
were  paid  had  increased  in  relation  to  the  labor  and  absti- 
nence expended.  Wages  and  profits,  therefore,  as  an  aggre- 
gate would  rise  exactly  in  proportion  as  industry  had  become 
more  productive;  and  the  cost  of  producing  a  given  commod- 
ity, measured  in  wages  and  profits,  would  thus  remain  precise- 
ly as  before.  There  would  be  less  labor  and  abstinence  ex- 
erted, but  this  smaller  exertion  being  more  highly  remuner- 
ated, the  cost,  measured  in  the  remuneration,  would  suffer  no 
change.  I  may  mention  that  this  is  no  fanciful  deduction  of 
mine,  but  has  in  effect  been  applied  by  at  least  two  writers  to 
the  solution  of  a  practical  question.  In  a  paper  read  some 
years  ago  before  the  Dublin  Statistical  Society,  it  was  argued 
by  Dr.  Hancock  that  the  cost  of  producing  gold  had  not  been 
reduced  by  the  gold  discoveries;  and  what  was  Dr.  Hancock's 
proof  of  this  assertion  ?  Simply  this,  that  the  wages  and 
profits  of  the  producers  of  gold  had  increased  as  much  as  the 
labor  and  abstinence  required  for  the  production  of  a  given 
quantity  of  gold  had  diminished,  leaving  thus,  he  said,  the 
cost  of  production  unchanged.  The  facts  were  undoubtedly 
as  the  argument  assumed,  and  the  inference  was  strictly  in  ac- 
cordance with  the  accepted  view  of  cost  of  production.  But 
the  inevitable  conclusion  (which  Dr.  Hancock  did  not  draw) 
would  be  that  the  depreciation  of  gold  is  impossible.* 

Take  another  example  of  the  consequences  involved  in  this 
doctrine.  If  it  be  true  that  the  wages  and  profits  received  by 
the  producers  of  a  commodity  are  the  measure  of  its  cost  of 
production,  then  it  follows  that  all  commodities  whatever,  it 
matters  not  under  what  circumstances  produced,  whether  of 
competition  or  of  monopoly,  exchange,  and  can  not  but  ex- 
change, in  proportion  to  their  costs  of  production.     This  re- 

*  The  same  argument,  in  principle,  will  be  found  in  the  sixth  volume  of  Tooke 
iuid  Newmarch's  "  History  of  Prices,"  part  vii.,  §  14. 


''COST"  AS  WAGES  AND  PROFITS.  51 

suits  at  once  from  the  consideration  that  the  value  of  a  com- 
modity, where  it  is  continuously  produced,  constitutes  for  the 
producers  the  fund  from  which  wages  and  profits  are  paid. 
Accordingly,  such  as  the  value  is,  such  will  be  the  wages  and 
profits  of  the  producers ;  but  such  as  are  the  wages  and  prof- 
its of  producers,  such,  according  to  the  theory,  is  the  cost  of 
production.  When,  therefore,  two  commodities  exchange  for 
each  other,  or,  varying  the  expression,  when  their  values  or 
prices  are  the  same,  their  costs  of  production,  according  to  the 
view  we  are  considering,  will  necessarily  be  the  same.  It  is 
evident  that  this  argument  applies  to  every  case  of  value  and 
price,  and  is  wholly  irrespective  of  the  circumstances,  whether 
of  freedom  or  monopoly,  under  which  commodities  are  pro- 
duced. In  truth,  the  principle  that  "cost  of  production  de- 
termines value"  becomes,  when  thus  understood,  little  more 
than  the  assertion  of  an  identical  proposition,  since  it  merely 
amounts  to  saying  that  values  are  in  proportion  to  the  aggre- 
gate of  the  elements  of  which  they  are  made  up. 

That  a  doctrine  open  to  objections  so  fundamental  should 
have  obtained  the  currency  and  prestige  which  this  has  ac- 
quired may  seem  scarcely  credible;  and  I  am  in  some  dread 
lest  I  should  be  suspected  of  misrepresenting  the  view  I  am 
combating.  But  that  I  have  not  done  so  will  be  admitted  on 
consideration  of  the  following  sentences  occurring  in  the  pas- 
sage quoted  above,  in  which  Mr.  Mill  discloses  with  perfect 
clearness  the  line  of  thought  by  which  the  view  in  question 
has  been  reached:  "What  the  production  of  a  thing  costs  to 
its  producer,  or  its  series  of  producers,  is  the  labor  expended 
in  producing  it.  If  ive  consider  as  the  producer  the  capitcdist 
who  makes  the  advances,  the  ivord  labor  may  be  replaced  by  ivages; 
what  the  produce  costs  to  him  is  the  wages  which  he  has  had  to 
pay."  In  other  words,  the  point  of  view  is  shifted  from  the 
ground  of  human  interests  to  the  partial  and  limited  stand- 
point of  the  capitalist  employer;  and  the  cost  of  producing  an 


52  '  NORMAL  VALVE. 

article,  which  really  consists  in  the  sacrifices  required  of  hu- 
man beings  for  its  production,  is  only  considered  so  far  forth 
as  it  is  "cost  to  him,"  that  much  more  important  portion  of 
the  cost  which  is  cost  to  the  laborer  being  put  altogether  out 
of  sight.  This  point  of  view  being  once  taken,  the  rest  fol- 
lows simply  and  naturally.  What  is  cost  to  the  capitalist, 
that  is  to  say,  his  advances,  consisting  of  the  profits  of  previ- 
ous producers  as  well  as  of  the  wages  of  laborers,  profits  as 
well  as  wages,  must  evidently  be  included  in  cost;  and  not 
only  the  profits  of  previous  producers,  but,  in  order  to  meet 
the  case  of  different  periods  of  advancing  capital,  the  profits 
of  the  producer  of  the  particular  commodity  whose  cost  is  con- 
sidered— an  extension  of  the  theory  which  involves  this  curi- 
ous consequence,  that  among  the  elements  of  the  cost  of  pro- 
ducing a  commodity  is  counted  the  profit  obtained  on  that 
commodity  by  the  producer,  a  profit  which  I  need  scarcely 
say  is  not  realized  till  after  the  commodity  is  produced.  Such 
is  the  line  of  thought  by  which  the  view  in  question  has  been 
reached;  and  it  is  not  difficult  to  see  why,  once  adopted,  it 
should  find  easy  and  general  acceptance.  The  vocabulary  of 
commerce  is,  for  obvious  reasons,  framed  almost  wholly  from 
the  capitalist's  stand-point;  and  Political  Economy  is  for  the 
most  part  compelled  to  draw  its  nomenclature  from  the  vocab- 
ulary of  commerce,  A  doctrine,  therefore,  of  cost  of  produc- 
tion which  resolved  all  cost  into  capitalist's  cost  would  easily 
fall  in  at  once  with  the  general  phraseology  of  economic  sci- 
ence, and  with  the  preconceptions  and  prepossessions  gener- 
ated by  commercial  modes  of  thought. 

That  the  laborer's  share  in  the  industrial  sacrifice  is  by  the 
current  doctrine  excluded  from  the  conception  of  cost  of  pro- 
duction does  not  appear  to  have  been  seen,  or,  if  seen,  to  have 
been  adequately  appreciated  by  its  adhr-rents.  Mr.  Mill's  lan- 
guage seems  to  imply  that  the  wages  advanced  by  the  capital- 
ist— though  lie  admits  they  only  represent  "the  cost  of  pro- 


''COST"  AS  WAGES  AND  PBOFlfS.  53 

ducing  to  Jwn,^'  may  yet  in  some  way  be  taken  to  represent 
the  cost  to  the  laborer  also,  for,  having  dealt  with  this  portion 
of  the  case,  he  leads  on  to  the  next  with  the  words :  "  Thus 

far  of  labor  or  wages,  as  an  element  of  cost  of  production 

There  is  also  capital,"  etc.  But  I  must  absolutely  deny  that 
wages  can  in  any  sense  be  taken  to  represent  the  labor  element 
in  cost  of  production.  Wages,  as  Mr.  Mill  observed  in  the 
passage  already  quoted,  may  be  regarded  as  cost  to  the  capi- 
talist who  advances  them ;  though  perhaps  it  would  be  more 
correct  to  say  that,  so  far  as  they  go,  they  measure  his  cost, 
which  really  consists  in  the  deprivation  of  immediate  enjoy- 
ment implied  in  the  fact  of  the  advance.  But  to  the  laborer 
wages  are  reward,  not  cost ;  nor  can  it  be  said  that  they  stand 
in  any  constant  relation  to  that  which  really  constitutes  cost 
to  him.  If  they  did,  wages  in  all  occupations,  in  all  countries, 
and  in  all  times,  would  be  in  proportion  to  the  severity  of  the 
toil  which  they  recompensed;  whereas  the  proportion  fails, 
not  only  in  different  occupations  and  in  different  countries, 
but  whenever  a  general  advance  or  decline  takes  place  in  the 
conditions  of  productive  industry  in  the  same  occupations  and 
in  the  same  countries.  That  it  fails  in  different  occupations  in 
the  same  country  Mr.  Mill  himself  allows ;  rather,  let  me  say, 
he  has  been  the  first  economist  strongly  to  insist  upon  the  im- 
portance of  this  fact ;  that  it  fails  on  a  comparison  of  the  condi- 
tion of  labor  in  different  countries  is  too  obvious  to  need  proof; 
and  that  it  fails  in  the  same  country  and  in  the  same  occupa- 
tions on  the  occurrence  of  important  changes  in  the  conditions 
of  productive  industry  we  may  satisfy  ourselves  by  simply  ob- 
serving the  events  now  passing  before  our  eyes.  The  remu- 
neration of  labor  has  for  some  years  been  pretty  steadily  ad- 
vancing in  the  majority  of  occupations  in  this  country — ad- 
vancing not  merely  in  its  money  amount,  but  in  the  real  re- 
ward it  procures  for  the  laborer.  And  wherever  this  has  hap- 
pened without  a  corresponding  increase  in  the  severity  of  the 


54  NORMAL  VALUE. 

toil  undergone  (and  in  general  it  has  been  accompanied  rather 
bj  a  reduction  than  an  extension  of  working  time),  the  pro- 
portion between  sacrifice  and  reward  has  been  altered.  I  re- 
peat, therefore,  that  not  only  do  wages  not  constitute  the  la- 
borer's share  in  the  cost  of  production,  but  they  can  not  be 
taken  in  any  sense  to  represent  that  cost.  Where  they  are  ad- 
vanced by  the  capitalist  they  measure,  so  far  as  they  go,  the 
capitalist's  sacrifice,  and  the  capitalist's  alone ;  and  an  analysis 
of  cost  of  production,  therefore,  which  takes  no  account  of  any 
sacrifices  but  those  represented  by  wages,  simply  omits  alto- 
gether the  most  important  element  of  the  case. 

§  4.  The  point  for  which  I  am  contending  will  possibly  ap- 
pear to  some  persons  to  involve  a  purely  theoretical  issue.  A 
theoretical  issue  no  doubt  is  at  stake,  but  I  believe  a  better 
example  could  not  easily  be  found  of  the  intimate  connection 
between  theory  and  practice,  and  of  the  way  in  which  an  un- 
sound theory  can  invert  for  people  the  true  relation  of  phe- 
nomena and  mislead  in  the  practical  business  of  life,  than  is 
furnished  by  this  doctrine.  The  truth  of  this  statement  will 
only  fully  appear  in  the  later  chapters  of  this  work ;  but  even 
here  I  may  give  an  example  or  two.  What,  for  instance,  is 
now  the  grand  argument  with  the  people  of  the  United  States 
for  the  maintenance  of  protection?  Why,  the  high  cost  of 
production  in  that  country.  And  what  is  the  evidence  of  this 
high  cost  of  production?  Simply  the  high  rates  of  wages 
which  prevail.  How,  they  ask,  can  we,  with  our  high-priced 
labor,  compete  with  the  pauper  labor  of  Europe?  I  must 
frankly  own  that,  accepting  the  point  of  view  of  the  current 
theory  of  cost,  I  can  find  no  satisfactory  reply  to  this  question, 
and  I  am  quite  sure  that  Mr.  Wells,  who  implicitly  adopts  this 
point  of  view,  has  wholly  failed  to  furnish  one.  But  to  pursue 
the  argument  further  here  would  be  to  anticipate  what  will  come 
more  naturally  under  review  at  a  later  stage  of  our  investigation. 


RESULTS  OF  ERRONEOUS  THEORY.  55 

Nor  are  our  commercial  writers  here  entitled  to  ])lume  them- 
selves on  the  superiority  of  their  economic  notions  to  those  of 
American  protectionists,  at  least  as  regards  this  question  of 
cost  of  production.  In  dealing  with  the  labor  question,  the 
arguments  of  our  capitalists  do  not  differ  in  principle  from  that 
which  I  have  just  criticised.  Consider,  for  example,  the  sig- 
nificance of  such  passages  as  this  which  I  find  in  the  work 
of  so  well-informed  and  thoughtful  a  writer  as  Mr.  Brassey, 
and  which  fairly  represents  the  economic  doctrine  that  per- 
vades it : 

"It  is  the  opinion  of  Mr.  Lothian  Bell,  one  of  our  highest  authorities, 
that,  after  all  the  efforts  of  our  iron-masters  to  contend  with  the  difficul- 
ty of  high-priced  labor  by  the  improvement  of  machinery,  labor  costs 
fifteen  per  cent,  more  in  England  than  on  the  Continent,  and  this  disad- 
vantage, in  his  opinion,  entirely  neutralizes  the  advantages  we  derive 
from  our  great  facilities  in  the  proximity  of  our  iron-mines  to  our  coal- 
beds.  Our  workmen  are  not  sufficiently  alive  to  the  necessity  for  the 
exercise  of  the  utmost  efforts  of  ingenuity,  in  order  to  enable  capital 
invested  in  England  to  hold  its  own  in  the  industrial  campaign."'* 

Now,  I  ask,  what  inversion  of  the  true  relations  of  things 
can  be  more  complete  than  to  represent  high-priced  labor  as 
an  obstacle  to  production  in  the  same  sense  in  which  the  prox- 
imity of  our  coal-beds  to  our  iron-mines  constitutes  a  facility? 
Dear  labor  neutralizing  the  advantages  of  our  coal-beds  and 
iron-mines !  As  well  speak  of  the  large  fees  reaped  by  a  suc- 
cessful barrister  as  neutralizing  the  advantage  of  his  skill;  for 
not  more  certainly  are  the  large  fees  the  consequence  of  the 
barrister's  leoal  skill,  than  the  high  wages  of  our  artisans  are 
the  consequence  of  the  industrial  advantages  under  which  they 
work.  Now  what  is  the  explanation  of  this  singular  confusion 
of  thought  and  perversion  of  facts  ?  Obviously  this — the  whole 
problem  of  industry  is  looked  at  exclusively  from  the  capitalist's 

*  See  "Work  and  Wages," p.  19. 


56  NORMAL  VALUE. 

point  of  view.  "The  advantages  vje  derive"  from  our  coal- 
beds  and  iron-mines  are  the  advantages  which  capitalists  derive 
from  them.  "  British  trade"  means  capitalists'  profits;  and,  as 
the  only  cost  taken  account  of  in  production  is  the  capitalists' 
cost,  so  naturally  the  capitalists'  remuneration  is  the  only  remu- 
neration thought  worth  attending  to.  Hence  high  wages  are 
represented  as  "neutralizing"  industrial  advantages,  as  if  noth- 
ing were  gain  which  did  not  come  to  the  capitalist's  maw ;  and 
the  liberal  remuneration  of  the  working-people  is  deplored  as  a 
national  calamity  because  it  sets  limits  to  the  capitalist's  share 
in  the  produce  of  their  joint  exertions.  "  Dear  labor,"  says  Mr. 
Brassey  (p.  142),  summing  up  the  argument  of  a  chapter,  "is 
now  the  great  obstacle  to  the  extension  of  British  trade."'*  It 
does  not  occur  to  him  that  high  profits  are  an  obstacle  in  pre- 
cisely the  same  sense.  If  British  laborers  and  capitalists  will 
only  consent  to  accept  a  lower  scale  of  remuneration  for  their 
services  they  may  have  the  satisfaction  of  indefinitely  extend- 
ing British  trade  and  achieving  the  great  goal  of  commercial 
ambition  by  underselling  all  the  nations  of  the  earth.  Each, 
however,  halts,  and  would  prefer  that  the  other  should  take 


*  I  can  not  resist  quoting  the  sentence  which  follows  :  "But  we  see  how  cheap 
labor  at  the  command  of  our  competitors  [continental  capitalist  eniploj'ers]  seems 
to  exercise  the  same  enervating  influence  as  the  delights  of  Capua  on  the  soldiers 
of  Hannibal "  (p.  142).  To  which  tliis,  from  the  Times's  money  article,  may  serve 
as  a  pendant:  "It  must  be  borne  in  mind  that  no  discovery  of  fresh  supplies  [of 
coal],  either  in  Europe  or  America,  would  cause  any  decisive  benefit,  because  the 
present  difficulty  in  those  parts  of  the  world  is  not  from  want  of  coal,  but  from 

want  of  labor The  East  is  tlie  only  quarter  !6'Ae?-e /a  Jor  js  «n<ro?«?ne/erf; 

and  it  would  be  interesting  to  the  English  public  to  learn,  as  fixr  as  the  coal  ques- 
tion is  concerned,  why,  in  a  British  settlement,  where  labor  and  material  are  both 
in  abundance,  nothing  can  be  accomplished  to  mitigate  an  evil  which  promises  to 
become  one  of  the  most  serious  ever  inflicted  upon  the  industry  of  civilized  na- 
tions." It  is  not  clear  whether  the  evil  de|)recated  is  the  scarcity  of  coal  or  the 
high  price  of  British  labor ;  but,  from  the  jjoint  of  view  both  of  the  Times  and  of 
Mr.  lirassev,  these  would  both  be  evils  of  the  same  order. 


THEORY  OF  COST  OF  PRODUCTION.  57 

the  initiative  in  the  patriotic  sacrifice,  desiring,  like  the  French 
soldiers  at  the  battle  of  Fontenoj,  to  give  to  his  opponent  the 
honor  of  firing  first. 

§  5.  It  seems  to  me  that  a  sufficient  case  has  now  been  made 
out  to  justify  an  attempt  at  a  fresh  exposition  of  the  doctrine 
of  Cost  of  Production.  I  therefore  proceed  to  submit  to  the 
reader  that  view  of  it  which  such  reflection  as  I  have  been 
able  to  give  to  the  subject  has  led  me  to  form. 

And  here  I  must,  in  the  first  place,  insist  that  cost  means 
sacrifice,  and  can  not,  without  risk  of  hopelessly  confusing 
ideas,  be  identified  with  any  thing  that  is  not  sacrifice.  It 
represents  what  man  parts  with  in  the  barter  between  him  and 
nature,  which  must  be  kept  eternally  distinct  from  the  return 
made  by  nature  on  that  payment.  Tliis  is  the  essential  nature 
of  cost ;  and  the  problem  of  cost  of  production  as  bearing  on 
the  theory  of  value  is  to  ascertain  how  far  and  in  what  way 
the  payment  thus  made  by  man  to  nature  in  productive  indus- 
try determines  or  otherwise  influences  the  exchange  value  of 
the  products  which  result.  To  find  an  answer  to  this  question 
we  need  not  go  beyond  that  fundamental  principle  of  conduct 
which  leads  men  to  seek  their  ends  by  the  easiest  and  shortest 
means.  Tiie  end  of  engaging  in  industry  is  the  acquisition  of 
wealth  ;  and  the  means,  self-denial,  toil,  forethought,  vigilance. 
The  problem  of  industry  is,  therefore,  to  attain  wealth  at  the 
least  expenditure  of  those  bodily  and  mental  exertions — or,  as 
we  may  say,  at  the  least  sacrifice  or  cost.  And  the  law  of  cost 
of  production,  as  governing  value,  is  merely  the  practical  con- 
sequence and  outcome  of  tlie  pursuit  of  wealth  under  this  con- 
dition. 

In  order  to  perceive  this,  it  is  only  necessary  to  keep  stead- 
ily in  view  the  two  following  facts:  First,  that  under  the  influ- 
ence of  the  motive  just  indicated,  men,  in  selecting  their  occu- 
pations, whether  as  laborers  or  as  capitalists,  will,  50 yew  as  they 


58  NORMAL   VALUE. 

have  the  power  of  choice^  select  those  which,  in  return  for  a  given 
sacrifice,  yield,  or  promise  to  yield,  the  largest  rewards;  and 
secondly,  the  fact  that,  under  a  system  of  separation  of  employ- 
ments, industrial  rewards  consist  for  each  producer,  or,  more 
properly,  for  each  group  of  producers,  employed  on  a  given 
work,  in  the  value  of  the  commodities  which  result  from  their 
exertions.  I  say  in  the  value  of  the  commodities,  not  in  the 
commodities  themselves;  for  it  is  not  always  that  the  man  who 
is  engaged  in  industry  needs  the  particular  commodity  on  which 
his  own  exertions  are  bestowed,  and  it  is  seldom  that  he  needs 
more  than  at  most  an  insignificant  quantity  of  what  he  pro- 
duces; consequently  his  remuneration  must  come,  not  from 
the  direct  but  from  the  indirect  results  of  his  labors — from 
those  things,  whatever  they  are,  which  the  commodity  he  pro- 
duces enables  him  by  sale  and  purchase  to  command — in 
other  words,  from  its  value.  Given  the  productiveness  of  a 
man's  industry,  this  alone  will  not  enable  us  to  determine  the 
amount  of  his  remuneration.  In  order  to  this,  we  must  fur- 
ther know  the  proportions  in  which  what  he  produces  will  ex- 
change for  what  he  wants — that  is  to  say,  for  the  articles  of 
his  consumption.  The  value  of  the  product  resulting  from  in- 
dustry forms  thus  the  source  from  which,  under  the  actual 
state  of  things,  industry  is  remunerated.  Nor  is  this  conclu- 
sion invalidated  by  the  fact  that,  under  the  industrial  organiza- 
tion prevailing  in  this  and  other  civilized  countries,  the  laborer 
commonly  receives  his  reward  in  the  form  of  wages  advanced 
by  the  capitalist  before  the  product  is  completed ;  since  what 
he  receives  is  subsequently  recouped  to  the  capitalist,  the  sum 
being  drawn  from  the  value  of  the  product;  so  that  it  is  still 
the  value  of  the  product  from  which  the  remuneration  of  all 
concerned  in  the  creation  of  that  ])roduct  ultimately  comes. 
Wages  and  profits  in  each  branch  of  industry  are  thus  derived 
from  the  value  of  the  commodities  proceeding  from  that  branch 
of  industry,  and,  as  (with  the  exception  of  the  case  where  rent 


IMPLIES  FREE  COMPETITION.  59 

is  also  an  element  in  the  value  of  commodities — a  case  which, 
those  acquainted  with  the  economic  theory  of  rent  will  per- 
ceive, does  not  affect  the  general  argument)  wages  and  profits 
also  absorb  the  whole  of  that  value,  it  follows  that,  other 
things  being  the  same,  the  aggregate  of  wages  and  profits  re- 
ceived by  any  given  group  of  producers  will  always  vary  with 
the  value  of  the  aggregate  of  commodities  which  they  pro- 
duce. Where  wages  and  profits,  therefore,  in  different  occu- 
pations are  in  proportion  to  the  sacrifices  undergone,  the 
value  of  the  commodities  proceeding  from  those  occupations 
will  also  be  in  proportion  to  the  same  sacrifices,  that  is  to 
say,  the  commodities  wnll  exchange  in  proportion  to  their 
costs  of  production.  Now  wages  and  profits  will  be  in  pro- 
portion to  the  sacrifices  undergone  wherever,  and  only  so  far 
as,  competition  prevails  among  producers  —  wherever,  and  so 
far  only  as,  laborers  and  capitalists  have  an  effective  choice  in 
selecting  among  the  various  occupations  presented  to  them  in 
the  industrial  field.  Give  them  this  effective  choice,  and  the 
correspondence  of  remuneration  to  sacrifice,  not  indeed  in  ev- 
ery act  of  production,  but  as  a  permanent  and  continuing  state 
of  things,  is  secured  by  the  most  active  and  constant  of  human 
motives.  Each  competitor,  aiming  at  the  largest  reward  in 
return  for  his  sacrifices,  will  be  drawn  toward  the  occupations 
which  happen  at  the  time  to  be  the  best  remunerated;  while 
he  will  equally  be  repelled  from  those  in  which  the  remunera- 
tion is  below  the  average  level.  The  supply  of  products  pro- 
ceeding from  the  better  paid  employments  will  thus  be  in- 
creased, and  that  from  the  less  remunerative  reduced,  until 
supply,  acting  on  price,  corrects  the  inequality,  and  brings 
remuneration  into  proportion  with  the  sacrifices  undergone. 
Competition,  therefore,  is  at  once  the  security  for  the  corre- 
spondence of  industrial  remuneration  with  sacrifice,  and  also, 
and  because  it  is  so,  the  security  for  the  correspondence  of  the 
values  of  commodities  with  the  costs  of  their  production. 


60  NOEMAL   VALUE. 

The  indispensable  condition  to  the  action  of  cost  of  produc- 
tion £s  the  regulator  of  normal  values  is  thus  the  existence 
of  an  effective  competition  among  those  engaged  in  industrial 
pursuits ;  and  the  point  to  which  we  have  now  to  turn  our  at- 
tention is  the  extent  to  which  such  effective  competition  is 
actually  realized  in  industrial  communities.  Confining  our  at- 
tention for  the  present  to  England,  we  find  competition  here 
active  and  widely  prevalent.  In  trade,  as  distinguished  from 
industry,  I  mean  in  the  buying  and  selling  of  commodities  as 
distinguished  from  their  production,  it  may  be  said  to  be  uni- 
versal and  unlimited.  Every  one  is  at  liberty,  and  not  only 
at  liberty,  but  in  general  has  the  practical  power,  to  sell  his 
commodity,*  whatever  it  may  be,  in  any  market  in  the  coun- 
try. Again,  every  one,  speaking  broadly,  is  free,  so  far  as 
the  law  is  concerned,  to  engage  in  any  industrial  pursuit  he 
pleases,  from  hedging  and  ditching  up  to  the  learned  profes- 
sions. But  for  the  present  purpose  something  more  than  this 
is  necessary.  Not  only  must  there  be  for  dealers  the  right 
and  power  of  selling  the  commodity  where  they  please,  and 
for  workmen  the  legal  right  of  admission  to  whatever  occupa- 
tion each  prefers,  but  there  must  be,  for  laborers  and  capital- 
ists respectively,  the  practical  power  of  employing  their  labor 
and  capital  in  whatever  direction  each  may  please — in  a  word, 
an  effective  choice  in  deciding  on  the  destination  of  the  in- 
strument of  which  they  have  each  to  dispose.  It  matters  not 
what  the  obstacle  may  be  to  the  effectiveness  of  the  choice, 
whether  law,  ignorance,  or  poverty — if  there  be  an  obstacle,  if 
the  producer  can  not  pass  freely  from  the  less  to  the  more  lucra- 
tive occupation,  competition  is  defeated,  so  far  as  regards  the  re- 
quirements of  the  law  of  cost,  since  there  can  be  no  security 


*  I  saj-  his  "commodity,"  not  his  "service."  The  grounds  for  not  inchiding 
labor  and  commodities  in  the  same  category,  in  an  exposition  of  the  tiicory  of 
value,  will  be  found  stated  further  on  (part  ii.,  chap.  i.). 


COMPETITION,  now  FAR  EFFECTIVE.  61 

under  such  circumstances  that  remuneration  shall  be  brought 
into  correspondence  with  sacrifice.  This  is  the  sort  of  com- 
petition through  which  cost  of  production,  as  a  regulator  of 
value,  works;  and  the  question  is.  How  far  does  competition 
in  this  sense  prevail  in  this  and  other  industrial  communities? 
There  is  a  school  of  reasoners  who  will  not  hesitate  to  an- 
swer this  question  by  flatly  denying  the  existence  of  competi- 
tion at  all  in  the  sense  defined.  I  shall  be  told  that  the  as- 
sumption so  readily  made  by  economists,  that  capital  and  labor 
may  be  shifted  about  from  one  occupation  to  another  in  search 
of  the  highest  remuneration,  is  a  mere  figment  of  the  econom- 
ical brain,  without  foundation  in  fact.  Once  embodied  in  a 
form  suited  to  actual  work,  capital,  it  will  be  urged,  is  for  the 
most  part  incapable  of  being  turned  to  other  uses.  The  build- 
ings, plant,  and  material  required  for  one  kind  of  manufacture 
can  rarely  be  adapted  to  any  other,  and,  even  where  the  con- 
version is  possible,  the  process  will  only  be  accomplished  at 
great  expense  and  loss.  The  difficulty  of  transferring  labor,  it 
will  be  contended,  is  even  greater,  since  we  are  here  in  contact 
with  mental  as  well  as  physical  obstacles.  Industrial  skill  is 
not  a  thing  to  be  acquired  in  a  moment,  and  that  which  a  man 
possesses  is  the  result,  in  general,  of  considerable  time  and  out- 
lay devoted  to  its  acquisition.  Is  it  likely  that,  having  spent 
his  time  and  money  in  acquiring  this  skill  and  fitting  himself 
for  a  particular  occupation,  a  workman  will  desert  the  line  of 
life  he  has  chosen  on  the  first  sign  of  an  advance  in  remunera- 
tion elsewhere?  We  are  reminded  how  long  the  hand-loom 
weavers  persisted  in  their  unprofitable  labors  after  power-looms 
were  in  general  use ;  and  we  can  imagine  how  extreme  the 
case  would  be  which  would  cause  a  carpenter  to  become  a 
smith,  or  a  smith  a  carpenter,  still  more,  which  would  cause  ei- 
ther to  take  to  hair-dressing  or  tailoring.  On  such  grounds, 
it  has  been  contended  that  competil  on,  such  as  I  have  defined 
it  as  necessary  to  the  action  of  the  principle  of  cost,  has  no  real 


G2  NORMAL    VALUE. 

existence,  and  that  consequently  all  theories  assuming  its  ex- 
istence fall  to  the  ground.  Alike  with  regard  to  capital  and 
labor,  it  is  held  that  either,  once  embarked  in  a  particular  em- 
ployment, is  practically  committed  to  that  employment,  and 
may  therefore  be  regarded  as  taken  out  of  the  field  of  compe- 
tition with  agents  of  the  same  kind  engaged  in  other  branch- 
es of  industry.  I  am  anxious  to  do  the  fullest  justice  to  the 
quantum  of  truth  contained  in  this  argument,  and  I  admit  at 
once  that  the  facts  alleged. are  substantially  true.  But  I  think 
it  will  not  be  difficult  to  show  that  they  by  no  means  sustain 
the  practical  conclusion  they  are  adduced  to  support,  and  that, 
taking  account  of  other  conditions  of  the  case  which  the  argu- 
ment overlooks,  they  are  perfectly  compatible  with  the  exist- 
ence of  an  effective  industrial  competition. 

In  the  first  place,  it  may  be  remarked  that,  in  order  to  secure 
an  effective  industrial  competition — such  a  competition  as  shall 
bring  rewards  into  correspondence  with  sacrifices  —  it  is  not 
necessary  that  every  portion  of  capital,  or  that  every  laborer, 
should  be  at  all  times  capable  of  being  turned  to  any  selected 
occupation.  It  is  enough  that  a  certain  quantity  of  each  agent 
— varying  according  to  circumstances — should  be  thus  disposa- 
ble. Suppose  some  branch  of  industry  to  be  specially  flourish- 
ing and  to  be  realizing  exceptional  gains,  there  is  no  need  that 
the  whole  industry  of  the  country  should  be  disturbed  to  cor- 
rect the  inequality.  A  small  diversion  of  capital  and  labor — 
small,  I  mean,  in  comparison  with  the  aggregate  embarked  in 
any  important  industry — will  in  general  suffice  for  the  pur- 
pose. Even  on  extraordinary  occasions,  when  unlooked-for 
events  in  the  political  or  commercial  world  disturb  ordinary 
calculations  and  give  an  enormous  advantage  to  particular  in- 
dustries— such  occasions,  for  example,  as  occurred  in  the  early 
years  of  railway  enterprise,  or  again  in  the  linen  trade  on  the 
breaking  out  of  the  American  civil  war — even  on  such  occa- 
sions, the  equilibrium  of  remuneration  and  cost  can  always  be 


COMPETITION,  HOW  FAB  EFFECTIVE.  63 

restored,  not  indeed  in  a  moment,  but  after  no  long  delay, 
through  the  action  of  labor  and  capital  still  uncommitted  to 
actual  industrial  employment,  and  without  any  sensible  en- 
croachment on  the  stock  already  actively  employed.  All  that 
is  necessary,  therefore,  with  a  view  to  an  effective  industrial 
competition,  is  the  presence  in  a  community  of  a  certain  quan- 
tity of  those  instruments  of  production  existing  in  disposable 
form,  ready  to  be  turned  toward  the  more  lucrative  pursuits, 
and  sufficiently  large  to  correct  inequalities  as  they  arise. 
Now,  it  will  not  be  difficult  to  show  that  this  condition  is  ful- 
filled in  many  industrial  communities,  completely  in  the  case 
of  capital,  and  less  perfectly,  but  still  within  certain  limits  real- 
ly and  effectually,  in  the  case  of  labor  also. 

The  existence'  of  a  large  amount  of  capital  in  commercial 
countries  in  disposable  form — or,  to  speak  less  equivocally,  in 
the  form  of  money  or  other  purchasing  power,  capable  of  being 
turned  to  any  purpose  required — is  a  patent  and  undeniable 
fact.  Nor  is  it  less  certain  that  this  capital  is  constantly  seek- 
ing the  best  investments,  and  rapidly  moves  toward  any  branch 
of  industry  that  happens  at  the  moment  to  offer  special  attrac- 
tions.*    It  is  plain,  too,  that  the  capital  thus  disposable  is  suffi- 

*  "Political  economists  say  that  capital  sets  toward  the  most  profitable  trades, 
and  that  it  rapidly  leaves  the  less  profitable  and  non-paying  trades.  But  in  ordi- 
nary countries  this  is  a  slow  process,  and  some  persons,  who  want  to  have  ocular 
demonstration  of  abstract  truths,  have  been  inclined  to  doubt  it  because  they  could 
not  see  it.  In  England,  however,  the  process  would  be  visible  enough  if  you  could 
only  see  the  books  of  the  bill-brokers  and  the  bankers.  Their  bill-cases,  as  a  rule, 
are  full  of  the  bills  drawn  in  the  most  profitable  trades,  and  cceteris  paribus  and  in 
comparison  empty  of  those  drawn  in  the  less  profitable.  If  the  iron  trade  ceases 
to  be  as  profitable  as  usual,  less  iron  is  sold ;  the  fewer  the  sales  the  fewer  the  bills ; 
and  in  consequence  the  number  of  iron  bills  in  Lombard  Street  is  diminished.  On 
the  other  hand,  if  in  consequence  of  a  bad  harvest  the  corn  trade  becomes  on  a  sud- 
den profitable,  immediately  'corn  bills'  are  created  in  great  numbers,  and  if  good, 
sire  discounted  in  Lombard  Street.  Thus  English  capital  runs  as  surely  and  in- 
stantly where  it  is  most  wanted,  and  where  there  is  most  to  be  made  of  it,  as  water 
runs  to  find  its  level." — "Lombard  Street," p.  13,  by  Walter  Bagehot. 


64  NOBMAL   VALUE. 

cient  for  the  purpose  we  have  here  in  view,  namely,  to  ren- 
der competition  effective  among  the  various  industries ;  since 
we  find  a  portion  of  it  constantly  moving  abroad  for  foreign 
investment — a  destination  it  would  scarcely  receive  while  there 
was  a  prospect  of  reaping  exceptionally  high  returns  from  in- 
vestment within  the  country.  We  have,  therefore,  in  the  exist- 
ence of  this  fund  all  that  is  required  for  a  practically  effective 
competition,  so  far  as  one  instrument  of  production  is  concern- 
ed, and  this  without  necessitating  any  serious  encroachment 
on  the  capital  actually  engaged  in  productive  operations.  But 
is  the  corresponding  condition  satisfied  in  the  case  of  labor? 
A  little  consideration  will  show  that,  within  certain  limits  and 
subject  to  certain  qualifications,  it  is  fulfilled  in  this  as  well. 

For  here  also  we  have  a  disposable  fund,  capable  of  being 
turned,  as  remuneration  may  tempt,  in  various  directions. 
Granted  that  labor,  once  engaged  in  a  particular  occupation, 
is  practically  committed  to  that  species  of  occupation  ;  all  la- 
bor is  not  thus  engaged  and  committed.  A  young  generation 
is  constantly  coming  forward,  whose  capabilities  may  be  re- 
garded as  still  in  disposable  form,  fulfilling  the  same  function 
in  relation  to  the  general  labor  force  of  the  country  which 
capital,  while  yet  existing  as  purchasing  power,  discharges  in 
relation  to  its  general  capital.  The  young  persons  composing 
this  body,  or  others  interested  in  their  welfore,  are  eagerly 
watching  the  prospects  of  industry  in  its  several  branches,  and 
will  not  be  slow  to  turn  toward  the  pursuits  that  promise  the 
largest  rewards.  Individual  tastes,  no  doubt,  will  go  for  some- 
thing in  the  decision,  but  varieties  of  tastes,  taken  over  a  large 
area,  may  be  assumed  pretty  well  to  balance  each  other;  and 
there  will  remain  a  steady  gravitation  of  disposable  labor  to- 
ward the  more  remunerative  callings.  On  the  other  hand, 
while  fresh  labor  is  coming  on  the  scene,  worn-out  labor  is 
passing  off;  and  the  departments  of  industry,  in  which  remu- 
neration has  from  any  causes  flxllen  below  the  average  level, 


COMPETITION,  HOW  FAB  EFFECTIVE.  65 

ceasing  to  be  recruited,  the  numbers  of  those  employed  in  them 
will  quickly  decline,  until  supply  is  brought  within  the  limits 
of  demand,  and  remuneration  is  restored  to  its  j  ust  proportions. 
In  this  way,  then,  in  the  case  of  labor  as  in  that  of  capital,  the 
conditions  for  an  effective  competition  exist,  notwithstanding 
the  practical  difficulties  in  the  way  of  transferring  labor,  once 
trained  to  a  particular  occupation,  to  new  pursuits.  But,  as  I 
have  already  intimated,  the  conditions  are  in  this  case  realized 
only  in  an  imperfect  manner,  and  this  involves,  as  a  conse- 
quence, certain  limitations  on  the  action  of  competition  in  the 
labor  market,  and  certain  corresponding  effects  on  the  values 
of  commodities.  What  the  nature  of  those  limitations  are  I 
shall  now  proceed  to  point  out. 

I  remarked  just  now  that  the  youthful  labor  constantly  com- 
ing forward  to  recruit  the  labor  market  might  be  compared  to 
the  capital  still  existing  in  the  form  of  purchasing  power,  and 
ready  to  be  applied  to  any  occupation,  according  as  the  pros- 
pect of  profit  might  determine.  In  one  important  respect, 
however,  the  analogy  fails.  Of  the  capital  existing  in  this  dis- 
posable form  any  portion  may  be  applied  to  any  industrial  pur- 
pose. But  of  the  disposable  labor  each  element — that  is  to  say, 
each  individual  laborer — can  only  choose  his  employment  with- 
in certain  tolerably  well-defined  limits.  These  limits  are  the 
limits  set  by  the  qualifications  required  for  each  branch  of  trade 
and  the  amount  of  preparation  necessary  for  their  acquisition. 
Take  an  individual  workman  whose  occupation  is  still  undeter- 
mined, he  will,  according  to  circumstances,  have  a  narrower  or 
wider  field  of  choice  ;  but  in  no  case  will  this  be  co-extensive 
with  the  entire  range  of  domestic  industry.  If  he  belongs  to  the 
class  of  agricultural  laborers,  all  forms  of  mere  unskilled  labor 
are  open  to  him,  but  beyond  this  he  is  practically  shut  out  from 
competition.  Tlie  barrier  is  his  social  position  and  circum- 
stances, which  render  his  education  defective,  while  his  means 
are  too  narrow  to  allow  of  his  repairing  the  defect,  or  of  defer- 

5 


66  NORMAL  VAL  UE. 

ring  the  return  upon  his  industry  till  he  has  qualified  himself 
for  a  skilled  occupation.  Mounting  a  step  higher  in  the  in- 
dustrial scale: — to  the  artisan  class,  including  with  them  the 
class  of  small  dealers  whose  pecuniary  position  is  much  upon 
a  par  with  artisans,  here  also  within  certain  limits  there  is  com- 
plete freedom  of  choice,  but  beyond  a  certain  range  practical 
exclusion.  The  man  who  is  brought  up  to  be  an  ordinary  car- 
penter, mason,  or  smith,  may  go  to  any  of  these  callings,  or  a 
hundred  more,  according  as  his  taste  prompts,  or  the  prospect 
of  remuneration  attracts  him ;  but  practically  he  has  no  power 
to  compete  in  those  higher  departments  of  skilled  labor  for 
which  a  more  elaborate  education  and  larger  training  are  nec- 
essary, for  example,  mechanical  engineering.  Ascend  a  step 
higher  still,  and  we  find  ourselves  again  in  presence  of  similar 
limitations:  we  encounter  persons  competent  to  take  part  in 
any  of  the  higher  skilled  industries,  but  practically  excluded 
from  the  professions.  It  is  true,  indeed,  that  in  none  of  these 
cases  is  the  exclusion  absolute.  The  limits  imposed  are  not 
such  as  may  not  be  overcome  by  extraordinary  energy,  self- 
denial,  and  enterprise;  and  by  virtue  of  these  qualities  indi- 
viduals in  all  classes  are  escaping  every  day  from  the  bounds 
of  their  original  position,  and  forcing  their  way  into  the  ranks 
of  those  who  stand  above  them.  All  this,  no  doubt,  is  true. 
But  such  exceptional  phenomena  do  not  affect  the  substantial 
truth  of  our  position.  What  we  find,  in  effect,  is,  not  a  whole 
population  competing  indiscriminately  for  all  occupations,  but 
a  series  of  industrial  layers,  superposed  on  one  another,  within 
each  of  which  the  various  candidates  for  employment  possess 
a  real  and  effective  power  of  selection,  while  those  occupying 
the  several  strata  are,  for  all  purposes  of  effective  competition, 
practically  isolated  from  each  other.  We  may  perhaps  vent- 
ure to  arrange  them  in  some  such  order  as  this:  first,  at  the 
bottom  of  the  scale  there  would  be  the  large  group  of  unskill- 
ed or  nearly  unskilled  laborers,  comprising  agricultural  labor- 


NOS-COMPETIXG  GROUPS.  67 

ers,  laborers  engaged  in  miscellaneous  occupations  in  towns,  or 
acting  in  attendance  on  skilled  labor.  Secondly,  there  would 
be  the  artisan  group,  comprising  skilled  laborers  of  the  second- 
ary order  —  carpenters,  joiners,  smiths,  masons,  shoe  -  makers, 
tailors,  hatters,  etc.,  etc.,  with  whom  might  be  included  the 
very  large  class  of  small  retail  dealers,  whose  means  and  po- 
sition place  them  within  the  reach  of  the  same  industrial  op- 
portunities as  the  class  of  artisans.  The  third  layer  would  con- 
tain producers  and  dealers  of  a  higher  order,  whose  work  would 
demand  qualifications  only  obtainable  by  persons  of  substantial 
means  and  fair  educational  opportunities  —  for  example,  civil 
and  mechanical  engineers,  chemists,  opticians,  watch-makers, 
and  others  of  the  same  industrial  grade,  in  which  might  also 
find  a  place  the  superior  class  of  retail  tradesmen  ;  while  above 
these  there  would  be  a  fourth,  comprising  persons  still  more 
favorably  circumstanced,  whose  ampler  means  would  give  them 
a  still  wider  choice.  This  last  group  would  contain  members 
of  the  learned  professions,  as  well  as  persons  engaged  in  the 
various  careers  of  science  and  art,  and  in  the  higher  branches 
of  mercantile  business.  The  reader  will  not  understand  me  as 
offering  here  an  exhaustive  classification  of  the  industrial  pop- 
ulation. I  attempt  nothing  of  the  kind ;  but  merely  seek  to 
exhibit  in  rough  outline  the  form  which  industrial  organiza- 
tion, under  the  actual  conditions  of  modern  life,  tends  to  as- 
sume; my  object  being,  by  putting  the  fact  in  a  concrete 
shape,  to  furnish  help  toward  a  more  distinct  apprehension 
of  the  limitations  imposed  by  social  circumstances  on  the  free 
competition  of  labor  than  would  be  obtained  from  more  gen- 
eral statements.  As  I  have  already  said,  I  am  far  from  con-' 
tending  for  the  existence  of  any  hard  lines  of  demarkation  be- 
tween any  categories  of  persons  in  this  country.  No  doubt 
the  various  ranks  and  classes  fide  into  each  other  by  imper- 
ceptible gradations,  and  individuals  from  all  classes  are  con- 
stantly passing  up  or  dropping  down ;  but  while  this  is  so,  it 


68  NORMAL  VALUE. 

is  nevertheless  true  that  the  averacre  workman,  from  whatever 
rank  he  be  taken,  finds  his  power  of  competition  limited  for 
practical  purposes  to  a  certain  range  of  occupations,  so  that, 
however  high  the  rates  of  remuneration  in  those  which  lie  be- 
yond may  rise,  he  is  excluded  from  sharing  them.  We  are 
thus  compelled  to  recognize  the  existence  of  non-competing  in- 
dustrial groups  as  a  feature  of  our  social  economy;  and  this  is 
the  fact  which  I  desire  here  to  insist  upon.  It  remains  to  be 
considered  how  this  organization  of  industry  is  calculated  to 
modify  the  action  of  the  principle  of  cost  of  production. 

The  reader  will  remember  that  there  are  two  distinct  sac- 
rifices undergone  in  the  business  of  production — the  sacrifice 
of  the  capitalist,  and  the  sacrifice  of  the  laborer.  As  regards 
the  former,  the  competition  of  capital  being,  as  we  have  seen, 
effective  over  the  entire  industry  of  each  commercial  country, 
it  follows  that  so  much  of  the  value  of  commodities  as  goes  to 
remunerate  the  capitalist's  sacrifice,  and  which  may  be  regard- 
ed as  the  "profit  fund,"  will  correspond  throughout  the  range 
of  domestic  industry  with  that  portion  of  the  cost  which  falls 
to  the  capitalist.  The  defalcation  from  the  principle  of  cost 
occurs  not  here,  but  in  that  other  and  larger  element  in  the 
value  of  commodities  which  goes  to  remunerate  the  laborer. 
The  nature  of  the  failure  may  be  thus  described :  The  ex- 
change of  all  commodities  produced  by  laborers  belonging  to 
the  same  industrial  group,  or  competing  circle,  will  be  govern- 
ed by  the  principle  of  cost — this  results  necessarily  from  the 
fact  that  competition  is  effective  within  such  groups  or  cir- 
cles; but  the  exchange  of  commodities  produced  by  laborers 
belonging  to  different  groups  or  competing  circles  will,  for  the 
opposite  reason,  not  be  governed  by  this  principle.  Thus  all 
the  products  of  unskilled  labor  will  exchange  for  each  other 
in  proportion  to  their  costs ;  as  will  also  all  the  products  of 
ordinary  artisan  labor  as  among  themselves.  But  the  latter 
products  will  not  exchange  against  the  former  in  proportion 


LIMITATION  ON  THE  LAW  OF  COST.  69 

to  their  costs,  nor  will  the  products  of  artisan  labor,  or  of  un- 
skilled labor,  exchange  in  proportion  to  their  costs  against 
those  of  the  higher  industrial  groups.  The  price  of  a  deal 
table  and  the  price  of  a  common  lock  will  be  found  to  corre- 
spond to  the  sacrifices  actually  undergone  by  their  producers ; 
or  again,  the  price  of  a  barometer  and  the  price  of  a  watch  will 
be  found  to  correspond  to  the  same  conditions ;  but  if  we  com- 
pare the  price  of  either  of  the  latter  commodities  with  that  of 
either  of  the  former,  we  shall  find  that  the  correspondence  fails ; 
the  prices  of  the  barometer  and  of  the  watch  will  bear  a  far 
larger  proportion  to  their  respective  costs  than  those  of  the 
deal  table,  or  of  the  common  lock,  to  theirs.  If  any  one  ques- 
tions the  fact,  the  evidence  is  to  be  found  in  the  relative  re- 
muneration of  the  producers  of  the  several  articles.  That  re- 
muneration, as  I  have  shown,  comes  from  the  price  of  the  com- 
modity in  each  case ;  but,  while  it  is  in  proportion  to  the  rela- 
tive sacrifices  of  production  in  the  case  of  the  workmen  who 
are  in  competition  with  each  other,  it  is  not  in  proportion  to 
those  sacrifices  where  the  workmen  are  excluded  from  mutual 
competition.  The  result,  then,  is  that  the  principle  of  cost  of 
production  controls  exchange  value  in  the  transactions  taking 
place  within  certain  limited  industrial  areas;  while,  in  the  re- 
ciprocal dealings  of  those  several  areas  with  one  another,  its 
operation  fails. 

This  is  the  principal  modification  suffered  by  cost  of  produc- 
tion in  consequence  of  the  circumstance  we  are  considering. 
In  reality,  however,  the  effects  of  that  state  of  things  are  a 
good  deal  more  complex  than  would  appear  from  the  state- 
ment just  made;  for  in  that  statement  account  was  not  taken 
of  the  fact  that  the  same  commodity  is  very  frequently  the 
product  of  labor  belonging  to  different  industrial  circles.  For 
example,  a  house  is  mainly  produced  by  masons,  brick-layers, 
carpenters,  plasterers,  and  others,  who  would  all  rank  in  the 
class  of  artisans;    but  a  considerable  quantity  of  purely  un- 


70  NORMAL   VALUE. 

skilled  labor  is  also  employed  in  attendance  upon  these,  as 
labor  of  a  higber  degree  of  skill  than  that  of  the  oidinary  ar- 
tisan is  employed  in  the  finishing  and  decoration  of  the  house. 
Now  suppose  a  commodity  of  this  kind,  the  joint  production 
of  workmen  of  different  orders,  to  be  exchanged  against  one 
produced  by  workmen  belonging  to  some  one  industrial  group, 
or  to  several  groups,  but  in  proportions  different  from  those 
obtaining  in  the  other  case,  what  principle  would  here  govern 
exchange  value,  or — to  express  the  conception  in  a  more  fa- 
miliar form — the  relative  prices  of  the  commodities?  Mani- 
festly more  than  one  principle  will  be  engaged  in  determining 
the  result.  So  far  as  the  two  commodities  are  the  products  of 
workmen  in  competition  with  each  other,  their  values  will  be 
governed  by  cost  of  production,  but  so  far  as  they  proceed 
from  workmen  not  in  mutual  competition,  they  will  be  gov- 
erned by  that  other  principle,  yet  to  be  ascertained,  which 
governs  normal  value  in  the  absence  of  competition.  Sup- 
posing the  commodity  with  which  a  house  is  compared  were 
produced  exclusively  by  the  artisan  class,  the  cost  principle 
would  be  mainly  operative  in  determining  the  exchange  rela- 
tion ;  but  it  would  not  be  entirely  so,  since  a  portion,  though 
a  small  portion,  of  the  house  has  been  produced  by  workmen 
not  in  competition  with  the  producers  of  the  other  article.  On 
the  other  hand,  if  the  comparison  were  made  between  a  house 
and  a  commodity  produced  either  wholly  by  unskilled  labor, 
or  wholly  by  labor  of  a  degree  of  skill  superior  to  that  of  or- 
dinary artisan  labor,  the  relative  values  would  follow,  but  in  a 
slight  degree,  the  rule  of  cost  of  production,  being  mainly  con- 
trolled by  the  principle  prevailing  in  the  absence  of  the  condi- 
tions which  secure  the  action  of  cost.  This  examj^lc  will  serve 
to  show  the  great  complication  that  arises  in  the  relative  values 
of  commodities  under  the  actual  conditions  of  their  production. 
And  if  we  bear  in  mind  that  all  manufactured  commodities  are 
produced  from  raw  materials  which  are  very  frequently  the 


LIMITATION  OF  THE  LAW  OF  COST.  71 

product  of  workmen  not  in  competition  with  those  who  per- 
Ibrm  the  manufacturing  process,  we  shall  see  how  widely  the 
range  of  this  sort  of  complication  extends.  Still  we  must  not 
exaggerate  its  importance.  What  mainly  happens  is,  that  the 
bulk  of  the  value  of  each  commodity  follows  one  law — say  the 
law  of  cost,  or  what  we  shall  afterward  find  to  be  the  law  of 
reciprocal  demand,  while  a  small  remaining  element  is  govern- 
ed by  a  different  principle.  Thus,  reverting  for  a  moment  to 
a  previous  illustration,  a  barometer  and  a  watch  are  in  very 
large  proportion  the  products  of  workmen  of  a  high  order  of 
skill,  and  in  industrial  competition  with  each  other ;  in  a  very 
insignificant  degree,  of  workmen  of  an  inferior  order:  as,  on 
the  other  hand,  a  deal  table  and  a  common  lock  are  mainly  the 
products  of  ordinary  artisan  labor,  though,  it  may  be  in  some 
small  degree,  also  of  labor  not  in  competition  with  the  labor 
of  artisans.  In  so  far,  however,  as  any  portion  of  the  labor 
employed  on  the  barometer  is  out  of  competition  with  some 
portion  of  that  employed  on  the  watch,  and  in  so  far  as  the 
same  is  true  of  the  labor  employed  on  the  other  compared  ar- 
ticles, to  that  extent  we  were  not  justified  in  asserting  that  the 
commodities  in  question  exchanged,  either  pair  of  them,  in  pro- 
portion to  their  costs  of  production.  Nevertheless,  it  is  certain 
that  our  statement  was  substantially  true,  since  the  chief  por- 
tion, and  so  much  the  chief  portion  as  to  be  nearly  the  whole, 
of  the  labor  employed  on  each  pair  fulfilled  the  required  con- 
dition ;  and  this  would  govern  a  corresponding  proportion  of 
their  values.  A  similar  qualification  would  be  needed  in  the 
case  of  most  assertions  of  a  like  nature.  In  strictness,  we  can  sel- 
dom say  that  the  values  of  two  commodities  are  in  their  whole 
extent  governed  by  their  costs  of  production  :  we  can  only  say 
that  they  are  so  mainly,  and  in  their  chief  elements.  In  effect 
the  point  in  question  is  of  little  more  than  theoretic  importance. 
As  a  point  of  theory  it  is  proper  to  notice  it,  but  the  circumstance 
it  deals  with  has  little  sensible  effect  upon  the  facts  of  exchange. 


72  NORMAL  VALVE. 

The  mode  in  which  the  cost  of  producing  commodities  op- 
erates in  regulating  their  values  has  now,  I  trust,  been  made 
tolerably  clear.  It  will  probably  have  been  observed,  that  as 
I  have  departed  from  the  current  doctrine  in  my  view  of  the 
elements  of  cost,  so  also  have  I  departed  from  it  in  my  manner 
of  representing  the  operation  of  the  law.  That  law  is  ordina- 
rily regarded  as  a  principle  governing  value  universally  wher- 
ever it  affects  value  at  all — governing,  that  is  to  say,  the  value 
of  certain  classes  of  commodities  in  all  exchanges;  so  that,  the 
conditions  of  their  production  being  known,  the  law  of  their 
value  is  supposed  to  be  known,  whatever  may  be  the  nature 
or  the  conditions  of  production  of  the  commodities  against 
which  they  are  exchanged.  For  example,  the  price  of  calico 
would  commonly  be  said  to  be  governed  by  its  cost  of  produc- 
tion, and  this  would  be  laid  down  without  any  limitation  as  to 
the  article  which  might  form  the  other  member  in  the  ex- 
change. If,  however,  the  exposition  contained  in  the  forego- 
ing pages  be  sound,  this  conception  of  the  law  can  not  be  cor- 
rect. For  what  has  there  appeared  is  a  tendency  in  commodi- 
ties to  exchange  in  proportion  to  their  costs  of  production  only 
so  far  as  there  exists  free  competition  among  iheir  producefrs. 
The  exchange,  therefore,  in  proportion  to  cost  would  only  take 
place  within  the  limits  of  the  field  of  free  competition  ;  and  a 
commodity  produced  within  this  field,  but  exchanged  against 
one  produced  by  workmen  from  beyond  it,  would  not  in  such 
case  exchange  in  proportion  to  its  cost  of  production.  Sup- 
posing, for  example,  A,  B,  C,  D,  E,  F,  to  be  commodities,  the 
producers  of  which  are  all  in  free  competition  with  each  other, 
such  commodities  would  exchange  among  themselves  in  pro- 
portion to  their  costs.  Again,  supposing  X,  Y,  Z,  to  be  com- 
modities produced  by  workmen  also  in  free  competition  with 
each  other,  but  excluded  from  competing  with  those  who  had 
j)roduced  A,  B,  C,  1),  etc. ;  here  again  the  values  of  X,  Y,  Z,  in 
the  exchanges  of  these  commodities  against  each  other  would 


NATURE  OF  THE  LAW  OF  COST.  73 

be  governed  by  the  principle  of  cost.  But  now  suppose  the 
exchange  to  be  made  of  a  commodity  belonging  to  the  former 
category  against  one  belonging  to  the  latter — value  would  in 
this  case  be  no  longer  governed  by  cost  of  production,  inas- 
much as  there  was  no  longer  free  competition  among  those 
who  had  produced  the  commodities  exchanged.  Now  if  the 
reader  will  recall  the  description  that  has  been  given  of  the 
various  non-competing  groups  of  which  our  industrial  system 
is  made  up,  he  will  perceive  that  the  case  last  supposed  repre- 
sents no  inconsiderable  proportion  of  all  the  exchanges  which 
take  place  within  such  a  country  as  this ;  and  that,  therefore, 
the  action  of  cost  of  production  in  regulating  value  is  by  no 
means  as  extensively  prevalent,  even  within  the  limits  of  the 
same  country,  as  the  current  theory  w^ould  lead  us  to  suppose. 
The  same  commodity  follows  the  law  of  cost  of  production  in 
some  exchanges  and  does  not  follow  it  in  others ;  nor  is  it  true 
that  the  value  of  any  commodity  conforms  to  the  principle 
of  cost  in  all  exchanges.  In  order  that  this  should  happen, 
effective  competition  should  be  established  among  producers 
over  the  entire  field  of  industry  —  a  condition  which,  I  need 
hardly  say,  is  very  far  yet  from  being  anywhere  fulfilled. 
The  true  conception  of  the  law  of  cost  is  thus,  not  of  a  law 
governing  universally  the  values  of  any  class  of  commodities, 
but  that  of  one  governing  the  values  of  certain  commodities  in 
certain  exchanges. 

§  6.  In  what  has  gone  before,  cost  of  production  has  been 
discussed  without  more  than  a  passing  reference  to  the  nature 
of  the  elements  which  compose  it.  There  was  no  need  to  dis- 
criminate those  elements  with  particularity  while  we  were  oc- 
cupied in  establishing  the  general  principle,  bul  the  evidence 
for  that  principle  having  now  been  set  forth,  it  will  be  desira- 
ble to  attempt  some  analysis  and  characterization  of  the  con- 
stituents of  cost. 


74  NORMAL   VALUE. 

There  can  not  be  much  difficulty  in  determining  the  princi- 
pal elements  of  cost  of  production,  once  we  have  firmly  seized 
the  fact  that,  as  cost  means  sacrifice  and  not  reward,  so  cost 
of  production  means  the  sacrifice  involved  in  production — in 
the  act  or  acts  of  rendering  certain  objects  supplied  by  nature 
fitted  for  human  purposes,  not  the  beneficial  result  or  return 
upon  such  acts.  This  sacrifice,  so  soon  as  industry  has  passed 
its  most  primitive  stage,  assumes  two  distinct  forms — first,  that 
involved  in  the  physical  or  mental  exertion  incident  to  taking 
part  personally  in  the  work  of  production,  which  we  may  call 
briefly  the  sacrifice  of  "labor;"  and,  secondly,  that  involved  in 
supplying  the  prerequisites  of  productive  operations,  or  capi- 
tal— a  form  of  sacrifice  which  is  conveniently  expressed  by  the 
term  "abstinence."  These  are  the  principal  kinds  of  sacrifices 
involved  in  productive  industry ;  but  there  is  also  a  third,  the 
liability,  namely,  of  producers  to  certain  evils  over  and  above 
the  usual  and  calculable  sacrifices  incident  to  their  work,  which 
we  may  call  "  risk."  There  is  no  reason  in  the  nature  of  things 
that  these  several  sacrifices  should  not  be  undergone  by  the 
same  person,  that  is  to  say,  that  the  same  person  should  not  be 
at  once  laborer  and  capitalist,  and  also  incur  all  the  risk  of  the 
industrial  operation  ;  and  in  point  of  fact  this  arrangement  has 
place  more  or  less  in  every  country,  and  in  some  countries, 
especially  those  in  which  peasant  proprietorship  prevails,  to  a 
great  extent.  In  England,  however,  and  in  all  the  non-agri- 
cultural industry  of  most  civilized  countries,  the  sacrifices  of 
labor  and  abstinence  arc,  for  the  most  part,  undergone  by  dis- 
tinct classes,  who  are  named,  accordingly,  laborers  and  capi- 
talists. The  sacrifice  of  risk,  on  the  other  hand,  falls  on  both 
classes  of  producers  alike,  though  the  nature  of  the  risk  differs 
according  as  it  affects  one  or  the  other.  Affecting  the  capital- 
ist, it  is  risk  to  his  property ;  affecting  the  laborer,  it  is  risk  to 
his  bodily  and  mental  faculties  or  life,  but  in  either  case  it  is 
an  element  of  cost;  being  a  real  sacrifice  incurred  by  a  pro- 


THE  LABOR  ELEMENT.  75 

ducer,  and  demanding  consequently  a  corresponding  compen- 
sation in  the  value  of  the  product.* 

Our  analysis,  then,  of  cost  of  production  resolves  it  into  three 
principal  elements,  which,  I  may  remark,  are  also  ultimate  ele- 
mentsf  —  Labor,  Abstinence,  and  Kisk;  the  first,  under  the 
prevailing  industrial  arrangements  of  this  and  other  civilized 
countries,  borne  by  the  laborer,  in  that  enlarged  sense  of  the 
term  in  which  "laborer"  includes  all  who  take  a  personal  part 
in  the  business  of  production  ;  the  second  by  the  capitalist ; 
the  third  falling  upon  laborer  and  capitalist  alike.  A  few  re- 
marks on  each  of  these  elements  will  suffice  for  my  present 
purpose. 

Considering  labor  as  an  element  of  cost  of  production,  the 
principal  remark  that  seems  called  for  is  that,  in  estimating  it 
in  this  character,  three  circumstances,  and  three  circumstances 
only,  must  be  taken  account  of — namely,  the  duration  of  the 
exertion,  the  degree  of  its  severity  or  irksomeness,  and  the  risk 
or  liability  to  injury  of  any  kind  attending  it.  As  commodi- 
ties differ  greatly  more  in  the  duration  of  the  exertion,  or  the 
quantity  of  the  labor  required  for  their  production,  than  in  the 
severity  of  this  labor  or  the  risk  attending  it,  the  former  is  ob- 
viously the  most  important  circumstance  in  the  case,  and  it 
was  to  it  alone  that  Ricardo,  in  his  analysis  of  cost,  had  re- 

*  In  the  usual  exposition  of  the  doctrine  of  cost  of  production  the  only  nsk  taken 
account  of  is  that  incurred  hv  tlie  ca])italist ;  but  this  is  merely  a  consequence  of 
that  habit  of  contemplating  tlie  work  of  production  exclusively  from  the  capital- 
ist's stand-point,  of  which  I  have  already  spoken. 

t  As  I  understand  the  word,  "an  ultimate  element"  in  the  subject-matter  of 
any  science  is  either  an  element  which  in  the  actual  state  of  knowledge  does  not 
admit  of  being  farther  resolved,  or  one  the  resolution  of  which  belongs  to  some 
other  department  of  knowledge.  In  this  sense  labor,  abstinence,  and  risk  are  ul- 
timate elements  in  Political  Economy,  since,  though  they  all  admit  of  being  traced 
to  prior  conditions  and  so  "exjihiined,"  the  task  of  performing  this  process  falls 
within  the  province  of  other  sciences.  In  what  sense  profits  and  wages  can,  in 
any  case,  be  considered  ultimate  elements  of  cost  I  am  at  a  loss  to  understand. 


76  XOEMAL   VALUE. 

gard  ;  but  manifestly  his  exposition  was  in  this  respect  defect- 
ive. The  labor  employed  in  producing  different  commodities 
differs  in  severity  and  in  liability  to  accident  as  well  as  in  mere 
quantity,  and,  in  proportion  as  it  is  more  severe  or  more  lia- 
ble to  accident,  implies,  other  things  being  the  same,  a  greater 
sacrifice,  and  therefore  a  larger  cost.  This  greater  sacrifice  will 
require  corresponding  compensation,  which,  as  in  other  cases, 
can  only  be  furnished  from  the  value  of  the  product.  Com- 
modities, accordingly,  will  exchange — if  we  confine  our  atten- 
tion to  the  labor  element  of  cost — not  simply  in  proportion  to 
the  quantity  of  labor  employed  in  their  production,  but  in  pro- 
portion to  this  multiplied  by  the  severity  of  the  labor  or  the 
risk  attending  it.  When,  however,  we  have  taken  account  of 
quantity,  irksomeness,  and  risk,  we  have  taken  account  of  ev- 
ery incident  in  virtue  of  which  labor  is  an  element  of  cost  of 
production,  and  affects  through  this  principle  the  value  of  com- 
modities. 

It  will  be  observed  that  in  the  brief  analysis  just  given  I 
have  not  taken  any  account  of  skill  as  an  incident  of  labor  en- 
tering into  the  cost  of  production.  In  making  this  omission,  I 
have  no  doubt  I  shall  be  considered  by  many  to  have  omitted 
a  principal  element  of  the  case.  Nevertheless,  I  must  main- 
tain that  skill,  as  skill,  is  no  part  of  the  cost  of  production, 
and  I  add,  that  no  article  is  dearer  than  another  simply  in  vir- 
tue of  the  skill  bestowed  upon  it.  Let  me  explain.  Skill,  I 
say,  is  no  element  of  cost,  but  it  may  be,  and  generally  is,  an 
indication  of  that  which  is  an  element  of  cost — namely,  the 
sacrifice,  whether  in  the  form  of  labor  or  abstinence,  under- 
gone in  acquiring  the  skill.  Now,  so  far  as  skill  is  the  prod- 
uct of  such  sacrifice,  it  undoubtedly  represents  an  element  of 
the  cost  of  production  ;  but  the  point  to  be  attended  to  is,  that 
the  addition  thus  made  to  the  cost  of  production  is  in  propor- 
tion, not  to  the  skill,  but  to  the  sacrifice  necessary  to  the 
acquisition  of  the  skill.     As  a  matter  of  fact,  the  products  of 


RELATION  OF  SKILL  TO  "  COST."  77 

most  kinds  of  skilled  labor  exchange  against  those  of  unskill- 
ed in  a  proportion  much  more  favorable  to  the  former  than 
cost  of  production,  as  I  have  defined  the  doctrine,  would  pre- 
scribe. But  this  does  not  prove  that  skill  is  an  element  of 
cost ;  because  it  will  be  found  that,  where  the  products  of 
skilled  labor  command  these  high  terms  of  exchange,  the  con- 
ditions of  production  are  not  those  in  which  cost  of  produc- 
tion would  govern  value ;  in  other  words,  the  result  in  ques- 
tion only  occurs  where  skilled  labor  represents  a  monopoly. 
If  we  desire  evidence  of  the  powerlessness  of  skill,  as  such,  to 
affect  the  value  of  commodities,  we  have  only  to  consider  the 
very  low  prices  which  many  works  of  the  highest  literary  and 
scientific  excellence  fetch,  as  compared  with  products  of  a  far 
lower  degree  of  skill.  The  eminent  skill  embodied  in  such 
works  does  not  prevent  their  selling  at  a  price  far  below  their 
cost  of  production,  as  measured  by  the  prices  of  commodi- 
ties representing  skill  of  a  different  order;  and  if  in  other  in- 
stances the  products  of  skill  command  prices  far  above  what 
the  law  of  cost  would  prescribe,  no  more  is  this  elevated  value 
due  to  the  skill  which  such  products  represent,  but  to  the  circum- 
stances which  limit  the  possession  of  this  skill  to  a  small  num- 
ber of  persons  as  compared  with  the  demand  for  their  services.* 

*  The  reader  will  observe  that  the  doctrine  here  laid  down  as  to  the  relation  of 
skill  to  the  value  of  commodities  and,  as  depending  on  this,  to  the  relative  remu- 
neration of  services,  relates  to  skill  of  different  kinds  as  existing  in  the  different 
departments  of  industry.  Within  the  limits  of  the  same  trade  or  profession  dif- 
ferences of  skill  will,  in  general,  under  free  competition,  be  accompanied  with 
corresponding  differences  of  remuneration.  What  the  caj)italist  employing  labor 
looks  to  is  not  the  labor,  but  the  result ;  and,  consequently,  where  two  inferior 
workmen  only  produce  the  same  result  as  one  of  superior  skill,  it  will  be  worth  his 
while  to  pay  the  latter  double  what  he  could  afford  to  pay  either  of  the  former. 
Relative  wages,  therefore,  ivithin  the  same  occupation,  will,  where  competition  pre- 
vails, be,  in  general,  pretty  accurately  adjusted  to  the  different  degrees  of  skill : 
in  different  occupations — and  it  is  only  with  these,  as  furnishing  the  occasion  of 
exchange,  that  a  theory  of  value  has  to  do — they  Mill  be  affected  by  skill  only  in 
the  manner  pointed  out  in  the  text. 


78  NORMAL   VALUE. 

The  true  relation  between  skill  and  value  may  be  expressed 
in  the  following  propositions : 

First,  skill,  as  skill,  produces  no  effect  upon  value ;  in  other 
words,  comriiodities  do  not  under  any  circumstances  exchange 
for  each  other  in  proportion  to  the  degree  of  skill  bestowed 
upon  them.  Secondly,  skill,  though  in  itself  inoperative  on 
value,  nevertheless  affects  it  indirectly  in  two  distinct  ways : 
first,  where  competition  is  effective  among  producers,  through 
the  cost  which  must  be  undergone  in  acquiring  the  skill — in 
such  cases  the  value  of  skilled  products  will,  cceteris  imrihus, 
exceed  that  of  unskilled  by  the  amount  of  the  normal  returns 
upon  this  cost;  and,  secondly,  in  the  absence  of  effective  com- 
petition, through  the  principle  of  monopoly,  by  limiting  the 
number  of  competitors  in  skilled  occupations,  and  so  acting  on 
the  supply  of  skilled  products.  In  either  of  these  ways  skill 
may  raise  value ;  but,  as  skill,  that  is  to  say,  in  virtue  of  its 
own  excellence,  whether  measured  by  the  standard  of  utility 
or  of  artistic  merit,  it  is  powerless  for  this  result. 

There  is,  indeed,  a  mode  of  speaking  sanctioned  by  the  lan- 
guage of  some  economists,  and  much  in  favor  with  those  who 
seek  to  justify  in  all  things  existing  industrial  arrangements, 
which  implies  that  skill,  as  such,  is  a  source  of  value,  and  that 
high  or  low  wages  and  prices  are  to  be  explained  by  reference 
simply  to  the  results  of  the  skill  which  services  or  commodities 
embody.  For  example,  we  constantly  hear  it  said,  in  reply  to 
complaints  of  wages  being  unduly  low  in  certain  industries, 
that  this  must  be  so,  inasmuch  as  the  services  remunerated  by 
these  low  wages  are  of  little  worth,  while  the  higher  wages  ob- 
tained in  others  are  explained  by  reference  to  the  high  worth 
of  the  services  rendered  by  the  workmen  employed.  Em- 
ployers, we  are  told,  can  not  afford  to  pay  any  class  of  work- 
men more  than  their  services  are  worth.  Now,  what  is  the 
standard  of  "  worth"  here  adopted?  There  would  seem  to  be 
but  two  standards  possible;  first  that  furnished  by  the  ex- 


RELATION  OF  SKILL  TO  "  COST:'  79 

change  itself:  in  other  words,  the  "worth"  of  a  service  ma}' 
be  measured  by  the  money  it  commands.  According  to  this 
conception  of  "worth,"  the  statement  that  wages  are  low  be- 
cause the  services  they  remunerate  are  of  little  worth,  and  high 
because  the  worth  of  the  services  is  high,  merely  means  that 
wages  are  high  or  low  because  they  are  high  or  low,  which  does 
not  much  elucidate  the  problem ;  while,  in  the  assertion  that 
employers  can  not  pay  their  workmen  more  than  their  services 
are  worth,  the  point  at  issue  is  formally  begged,  since  —  the 
standard  of  worth  being  the  actual  terms  of  the  exchange — it 
amounts  to  saying  that  employers  can  not  afford  to  pay  their 
workmen  more  than  they  actually  do  pay  them,  which  is  just 
what  the  complainants  deny.  In  truth,  however,  though  this  is 
the  standard  of  worth  upon  which  those  who  use  the  argument 
I  am  considering  would,  if  pushed,  probably  rely,  their  language 
really  suggests  something  more  than  this — the  idea,  namely, 
that  industrial  "worth"  is  something  varying  with  the  utility 
embodied  in  the  services,  or,  what  comes  nearly  to  the  same 
thing,  with  the  skill  which  is  productive  of  this  utility.  Some 
such  sense  as  this  must  be  assigned  to  their  words  if  they  are 
not  to  be  taken  as  expressing  barren  truisms;  but  in  any  such 
sense,  the  statements  in  question  are  wholly  unfounded.  No 
such  connection  between  wages  (it  will  be  understood  that  I 
speak  now  o^  comparative  wages)  and  the  utility  or  skillfulness 
of  the  services  rendered  exists  as  the  language  assumes,  any 
more  than  a  similar  connection  can  be  made  out  between  these 
qualities  and  the  prices  of  commodities.  The  true  connection 
is  not  with  either  utility  or  skill,  but,  where  competition  is 
effective,  with  cost  of  production,  and  in  the  absence  of  effect- 
ive competition,  with  monopoly,  more  or  less  qualified,  and 
acting  through  supply  and  demand.  To  return  from  this  par- 
tial digression,  we  find  labor,  as  an  element  of  cost  of  produc- 
tion, measurable  by  reference  to  three  of  its  incidents,  and  to 
three  of  its  incidents  only — 1st,  the  duration  of  the  exertion,  or 


80  NORMAL  VALUE. 

the  quantity  of  labor ;  2d,  its  severity  or  irksomeness ;  and  3d, 
the  risk  attending  it.  In  whatever  other  qualities  various  sorts 
of  labor  may  differ,  unless  so  far  as  these  are  indications  of 
onerous  effort  expended,  they  are  no  portion  of  the  labor  ele- 
ment of  cost,  and  must  be  regarded  as  irrelevant  to  the  ques- 
tion now  in  hand. 

The  term  "  abstinence  "  is  the  name  given  to  the  sacrifice  in- 
volved in  the  advance  of  capital.  As  to  the  nature  of  this 
sacrifice,  it  is  mainly  of  a  negative  kind ;  consisting  chiefly  in 
the  deprivation  or  postponement  of  enjoyment,  implied  in  the 
fact  of  parting  with  our  wealth  so  far  at  least  as  concerns  our 
present  power  of  commanding  it.  The  term,  indeed,  would  im- 
ply that  the  sacrifice  is  wholly  negative;  but  I  am  inclined  to 
include  in  it  a  certain  small  positive  element,  namely,  that  low 
degree  of  risk  which  is  never  absent  from  the  advance  of  capi- 
tal. That  some  degree  of  risk  always  accompanies  the  act  in 
question  is  evident  from  the  nature  of  the  case,  since  it  implies 
either  the  trusting  of  one's  wealth  to  other  persons,  or,  where 
it  is  employed  by  the  owner  himself  in  productive  industry, 
the  putting  of  it,  with  a  view  to  future  results,  into  forms  not 
capable  of  being  directly  converted  to  his  uses.  It  will  be 
more  convenient,  I  think,  to  consider  this  slight  and  inevitable 
risk,  which  is  always  present  where  abstinence  is  exercised  for 
economic  ends,  as  an  incident  of  that  sacrifice,  than  as  a  sub- 
stantive element  of  cost  to  be  associated  with  "  risk  "  as  I  have 
defined  it  in  that  character.  I  shall,  therefore,  so  understand  it, 
and  shall  accordingly  define  "  abstinence  "  as  the  act  of  abstain- 
ing from  the  personal  use  of  wealth  with  a  view  to  employing 
it  in  productive  industry,  combined  with  that  low  degree  of 
risk  inevitably  attaching  to  every  such  act. 

This  being  the  nature  of  abstinence,  the  question  will  sug- 
gest itself  how  far  it  may  be  properly  considered  as  an  indus- 
trial sacrifice  needing  a  stimulus  to  its  exercise  in  the  form  of 
specific  reward,  and  to  be  co-ordinated  with  labor  in  an  analy- 


DOES  ABSTINENCE  NEED  REWARD  f  81 

sis  of  the  sacrifices  of  production.  It  must  be  admitted  tliat 
its  connection  with  production  is  not  so  intimate  as  that  of 
labor,  since  capital,  however  it  may  augment  the  efficiency  of 
industry,  is  not  absolutely  indispensable  to  it.  What  we  have 
to  deal  with,  however,  is  not  industry,  as  it  may  exist  among 
savages  or  in  very  primitive  communities,  but  industry  as  it  ex- 
ists in  civilized  countries ;  and  to  industry  in  this  sense,  to  in- 
dustry as  it  must  be  carried  on  if  the  populations  now  inhabit- 
ing civilized  countries  are  to  continue  to  exist,  capital  is  absolute- 
ly indispensable.  But,  if  so,  then  abstinence,  the  act  by  which 
capital  comes  into  existence,  must  be  regarded  as  a  necessary  con- 
dition toward  the  efficacious  prosecution  of  industrial  pursuits. 
But  is  it  properly  a  sacrifice?  a  sacrifice  which  needs,  in 
order  that  it  be  undergone,  the  prospect  of  a  specific  reward? 
To  put  the  question  in  another  form,  are  profits  to  be  placed 
on  the  same  line  with  wages  in  an  analysis  of  the  economy  of 
production?  As  to  the  economic  foundation  of  wages,  the 
case  is  very  clear.  Wages  are  necessary,  first,  to  support  the 
laborer,  and,  secondly,  in  a  free  community,  to  induce  him  to 
work.  Capital  has  no  need  to  be  fed  and  clothed,  but,  in  order 
to  its  existence,  there  must  be  an  adequate  motive  offered  to 
the  owners  of  wealth  to  induce  them  to  employ  it  in  this  way. 
At  present  this  inducement  is  found  in  profit;  and  the  ques- 
tion to  be  considered  is,  whether,  consistently  with  the  main- 
tenance of  capital,  this  inducement  can  be  dispensed  with. 
There  are  those  who  think  it  ma}^,  who  hold  that  capital  may 
be  maintained  without  any  deduction  in  fiivor  of  the  capitalist 
from  the  value  of  the  product  which  results  from  its  use,  and 
which  they  would  assign  in  its  entirety  to  those  who  take  a 
personal,  not  to  say  a  manual,  part  in  the  business  of  produc; 
tion.*     Assuming  that  those  who  take  this  view  understand 

*  The  language  of  some  of  the  manifestoes  of  the  International  justifies  this 
representation ;  but  I  argue  the  question  throughout  as  if  it  was  only  proposed  to 
deprive  the  capitalist  of  his  profit. 

6 


82  NORMAL   VALUE. 

the  process  by  which  capital  exists  and  grows,  we  must  sup- 
pose them  to  regard  the  act  of  abstaining  from  present  enjoy- 
ment as  in  itself  agreeable,  and,  coupled  with  the  risk  which 
always  attends  abstinence  when  practiced  for  industrial  pur- 
poses, as  constituting  in  some  inscrutable  way,  irrespective  of 
the  gains  which  flow  from  it,  its  own  reward;  so  that,  the  pres- 
ent inducement  being  removed,  the  accumulation  and  increase 
of  capital  would  go  on  with  unabated  force.  It  is  scarcely 
necessary  to  remark  on  the  perfect  gratuitousness,  not  to  say 
preposterousness,  of  such  a  notion.  It  is  true,  indeed,  that  ab- 
stinence may  be  for  the  rich,  with  whom  its  exercise  rarely 
implies  any  sensible  encroachment  on  customary  comforts  and 
luxuries,  and  still  less  on  necessaries,  but  a  trifling  sacrifice; 
but  even  in  their  case,  when  practiced  with  a  view  to  indus- 
trial investment,  it  means,  as  we  know,  risk  also;  which  is  cer- 
tainly a  sacrifice  great  enough  not  to  be  undergone  without 
the  clear  prospect  of  adequate  compensation.  And  even  if  we 
grant  that  a  reservation  of  a  portion  of  their  wealth  from  im- 
mediate consumption  would  still  be  practiced  by  prudent  and 
well-to-do  people,  even  though  the  specific  reward  wliich  now 
attends  it  were  taken  away  (since  there  would  still  be  the  de- 
sire to  provide  for  the  future),  it  does  not  follow  that  what  was 
thus  reserved  would  necessarily  go  to  assist  productive  indus- 
try ;  nay,  it  is  pretty  certain  that  this  would  not  be  its  destina- 
tion, since  it  might  with  much  less  risk  be  converted  into  gold 
or  silver,  and  hoarded.  Even  for  those,  therefore,  with  whom 
the  sacrifice  of  abstinence  would  be  slightest,  a  specific  reward 
would  be  needed  to  secure  its  exercise.  But  with  those  who 
are  not  included  among  the  rich,  with  that  great  class  of 
dealers  and  producers,  from  the  ranks  of  unskilled  labor  up- 
ward, whose  aggregate  savings  form  the  main  support  of  the 
capital  of  civilized  states,  abstinence,  far  from  being  a  slight,  is 
always  a  serious,  and  often  a  very  severe  sacrifice.  The  mere 
act  of  resisting  the  temptation  to  present  enjoyment,  and  of 


IXCBEASE  OF  CAPITAL.  63 

repressing  the  urgent  requirements  of  the  moment,  often  con- 
stitutes in  itself  a  severe  discipline,  and  demands  for  its  accom- 
plishment no  little  strength  of  character;  and  to  this  has  to 
be  added  the  inevitable  risk  incident  to  industrial  investment. 
Even  as  matters  stand  at  present,  the  inducement  is  found  for 
many  to  be  all  too  weak ;  but  take  away  this  inducement,  ex- 
clude the  prospect  of  future  gain  as  the  compensation  for  pres- 
ent trials,  and  what  reason  have  we  to  suppose  that  such  trials 
will  be  undergone  ? 

I  seem  to  be  laboring  to  prove  a  truism;  and,  indeed,  I  am 
inclined  to  attribute  the  opinion  I  am  combating  rather  to 
blank  ignorance,  or,  at  the  least,  profound  mystification,  on  the 
part  of  those  who  hold  it,  respecting  the  nature  and  source  of 
capital,  than  to  deliberate  acceptance  of  the  premises  on  which 
alone  it  can  logically  rest.  That  the  conversion  of  wealth  to 
the  purposes  of  productive  industry,  in  other  words,  the  crea- 
tion of  capital,*  involves  self-denial,  is  what  probably  has  nev- 
er crossed  their  imaginations:  much  more  likely,  if  they  have 
speculated  on  its  origin  at  all,  it  would  be  connected  in  their 
minds  with  the  issue  of  paper  money  and  other  operations  of 
banking.  But,  however  unsettled  for  them  be  the  question  as 
to  the  origin  of  capital,  on  one  point  they  have  no  hesitation 
or  doubt.  Governments,  it  is  a  fixed  article  in  their  economic 
creed,  have  an  unlimited  command  over  capital,  and  may  pos- 
sess themselves  of  it  at  all  times,  in  any  quantity  required. 
Where  such  notions  respecting  capital  prevail,  it  is  natural 
enough  that  profits  and  interest  should  appear  superfluous 
institutions.  Unfortunately  for  the  speculations  in  ques- 
tion, capital  is  not  the  creation  of  Banks,  nor  has  Government 

*  "Parsimony,  and  not  industry,  is  the  immediate  cause  of  the  increase  of 
capital.  Industry,  indeed,  provides  the  subject  wliich  parsimony  accumulates. 
But  whatever  industry  migiit  acquire,  if  parsimony  did  not  save  and  store  up. 
the  capital  would  never  be  the  greater." —  Wealth  of  Nations,  McCulloch's 
edition,  p.  149. 


84  NORMAL   VALUE. 

any  means  of  obtaining  it,  except  through  the  crude  expedient 
of  taking  it  from  those  to  whom  it  belongs.  Unfortunately, 
again,  the  process  by  which  capital  is  brought  into  existence, 
maintained,  and  increased,  is,  for  the  great  mass  of  those  who 
take  part  in  the  work,  a  really  painful  one.  Under  such  cir- 
cumstances compensation  and  reward  for  those  who  perform 
this  function  is  plainly  an  indispensable  condition  to  the  effect- 
ual prosecution  of  industry — a  consideration  which  justifies  us 
in  co-ordinating  abstinence  with  labor  among  the  elements  of 
cost  of  production,  as  we  co-ordinate  profits  with  wages  in  re- 
lation to  the  value  of  the  product. 

Perhaps  it  may  be  well  here  to  guard  against  a  possible  mis- 
apprehension of  the  doctrine  just  laid  down.  It  has  been  as- 
sumed in  the  argument  that  capital  is  indispensable  to  the  pros- 
ecution of  systematic  industry;  and  the  act,  creative  of  capital, 
saving,  parsimony,  or  abstinence,  has  been  characterized  as  a 
sacrifice  distinct  from  labor.  It  must  not  be  supposed  from 
this  that  there  is  any  economic  necessity,  or  any  economic  rea- 
son whatever,  at  least  derivable  from  the  arguments  just  used, 
that  capitalists  should  form  a  distinct  class  from  laborers.  The 
distinctness  of  the  sacrifices  constitutes  no  ground  for  assign- 
ing them  to  different  sets  of  persons.  The  same  person  may 
both  labor  and  abstain,  and,  performing  the  double  sacrifice, 
become  entitled  to  the  double  reward.  So  far,  indeed,  am  I 
from  thinking  that  there  is  any  thing  in  this  combination  of 
the  parts  of  capitalist  and  laborer  in  one  person  which  militates 
against  the  true  economy  of  productive  industry,  that  it  is  pre- 
cisely in  this  direction  that,  for  my  part,  I  am  disposed  to  look 
for  an  escape  from  the  growing  embarrassments  and  difficulties 
that  now  beset  the  relations  of  capital  and  labor.  But  this  is  a 
point  the  consideration  of  which  will  more  properly  fall  within 
another  part  of  this  work. 

Another  possible  ambiguity  it  ma}''  be  well  here  to  clear  up. 
As  was  intimated  just  now,  the  sacrifice  involved  in  a  given 


INEQUALITIES  OF  SACRIFICE.  85 

act  of  abstinence  is  very  different  in  the  case  of  different  per- 
sons. A  rich  man  abstains  from  the  consumption  of  his  super- 
fluous wealth,  and  is  scarcely  conscious,  perhaps  quite  uncon- 
scious, of  having  suffered  any  deprivation  whatever:  his  sur- 
plus income  goes  to  his  capital  account,  which  continues  to 
grow,  while  his  expenditure  remains  precisely  as  before.  On 
the  other  hand,  the  same  or  a  much  smaller  amount  of  wealth 
reserved  from  personal  consumption  by  an  artisan  or  a  small 
tradesman  will  frequently  demand  the  most  rigorous  self-de- 
nial. The  same  individual,  too,  feels  very  differently  the 
pains  of  abstinence  at  different  stages  of  his  career  —  in  the 
struggling  outset  and  at  the  successful  close.  And  it  is  similar 
with  labor.  The  laborious  effort  fitted  to  produce  a  given  re- 
sult does  not  represent  the  same  sacrifice  for  different  people : 
it  is  one  thing  for  the  strong,  another  for  the  weak ;  one  for 
the  trained  workman,  another  for  the  raw  beginner.  This 
being  so,  the  question  arises — How  are  such  differences  to  be 
dealt  with  in  computing  the  cost  of  production?  Are  we  to 
take  account  of  what  is  personal  and  peculiar  to  the  actual 
producers,  and  regard  the  cost  of  the  commodity  as  higher  or 
lower  according  as  it  has  been  produced  by  a  weak  or  a  strong 
workman,  or  by  capital  the  result  of  painful  or  of  painless  sav- 
ing? The  answer  must  be  in  the  negative.  The  sacrifices  to 
be  taken  account  of,  and  which  govern  exchange  value,  are, 
not  those  undergone  by  A,  B,  or  C,  but  the  average  sacrifices 
undergone  by  the  class  of  laborers  or  capitalists  to  which  the 
producers  of  the  commodity  belong.  A  few  remarks  will  en- 
able us  to  make  this  clear. 

What  at  bottom  maintains  the  connection  between  value 
and  cost  of  production  is,  it  must  always  be  remembered,  the 
power  of  choice  residing  in  laborers  and  capitalists  to  decide 
between  different  occupations.  Now  what  is  it  determines 
the  choice?  No  doubt  the  prospects  of  the  pursuit,  the  remu- 
neration being  compared  with  the  sacrifice.     But  what  sacri- 


86  NOBMAL   VALUE. 

fice?  Plainly  the  sacrifice  about  to  be  undergone  by  the  par- 
ticular workman  oi-  capitalist  who  has  to  make  the  choice. 
Each  takes  account  of  the  incidents  of  the  course  proposed  as 
it  bears  upon  himself,  and  considers  how  it  stands  in  the  com- 
parison with  others  equally  open  to  him.  The  conclusion  he 
arrives  at  on  this  point  determines  his  decision.  Through  a 
process  of  this  kind  every  laborer  and  capitalist,  either  per- 
sonally himself,  or  vicariously  through  a  parent  or  other  ad- 
viser, passes.  Carried  on  over  any  given  field  of  industrial 
competition,  it  is  evident  the  result  of  this  proceeding  must  be, 
not  to  bring  the  remuneration  of  each  of  the  individuals  com- 
prised within  it  into  conformity  with  the  sacrifice  which  each 
undergoes,  but  to  establish  this  conformity  among  the  aggre- 
gates of  those  engaged  in  the  several  competing  occupations; 
so  that  the  total  remuneration  falling  to  each  branch  of  indus- 
try shall  bear  the  same  proportion  to  the  total  sacrifices  un- 
dergone in  that  branch  as  the  total  remuneration  falling  to  any 
other  within  the  same  field  bears  to  the  sacrifices  undergone 
in  that  other.  The  total  remuneration  falling  to  any  branch 
of  industry,  however,  consists  of  the  total  value  of  the  commod- 
ities proceeding  from  it.  This  value,  therefore,  will  bear  the 
same  proportion  to  the  sacrifices  undergone  in  producing  it,  as 
the  value  proceeding  from  any  other  industry  within  the  same 
field  of  competition  bears  to  the  sacrifices  of  which  it  is  the 
result.  It  follows  that  the  relation  which  competition  estab- 
lishes between  cost  and  value  is  one,  not  between  the  value  of 
particular  commodities  and  the  sacrifices  of  the  individual  or 
individuals  who  have  produced  each  such  commodity,  but  one, 
between  commodities  taken  as  sorts  and  their  cost  of  produc- 
tion. We  can  not,  for  example,  assert  that  a  particular  pair 
of  shoes  will  exchange  against  a  particular  coat  in  proportion 
to  the  sacrifices  undergone  respectively  by  the  shoe-maker  and 
the  tailor  in  the  actual  case;  but  we  may  assert  that,  within  a 
given  field  of  competition,  shoes,  as  one  sort  of  commodity,  will 


AVERAGE  SACRIFICE.  87 

exchange  against  coats  as  another  in  this  proportion.  The 
costs,  therefore,  to  which  the  values  of  particular  commodities 
coi'respond  are  not  the  particular  sacrifices  undergone  in  pro- 
ducing each  commodity,  but  the  average  sacriiice  undergone 
in  producing  each  sort  of  commodity.  We  may,  therefore, 
state  broadly,  that  differences  in  the  sacrifices  incident  to  pro- 
duction, whether  of  labor  or  of  abstinence,  which  are  due  to 
peculiarities  either  in  the  physical,  mental,  or  social  circum- 
stances of  individuals,  are  to  be  excluded  from  consideration 
in  estimating  cost  of  production.  What  we  have  to  do  with 
is,  not  individual  sacrifice,  but  the  average  sacrifice  of  each  in- 
dustrial class. 

This  point  being  cleared  up,  we  can  have  no  difficulty  in 
seeing  how  cost  in  its  principal  elements  is  to  be  computed. 
In  the  case  of  labor,  the  cost  of  producing  a  given  commodity 
will  be  represented  by  the  number  of  average  laborers  em- 
ployed in  its  production — regard  at  the  same  time  being  had 
to  the  severity  of  the  work  and  the  degree  of  risk  it  involves 
— multiplied  by  the  duration  of  their  labors.  In  that  of  ab- 
stinence, the  principle  is  analogous :  the  sacrifice  will  be  meas- 
ured by  the  quantity  of  wealth  abstained  from,  taken  in  con- 
nection with  the  risk  incurred,  and  multiplied  by  the  duration 
of  the  abstinence. 

§  7.  We  have  now  treated  the  subject  of  normal  value,  so 
far  as  it  is  regulated  by  the  principle  of  cost  of  production. 
But,  as  I  stated  in  the  opening  of  this  chapter,  the  phenomenon 
in  question  is  by  no  means  confined  to  cases  in  which  the  con- 
ditions necessary  to  the  action  of  cost  of  production  exist.  The 
essence  of  normal  value,  as  I  then  remarked,  is  a  tendency  in 
the  exchanging  proportions  of  commodities  to  gravitate  toward 
a  central  point,  and  this  tendency  is  observable  in  departments 
of  exchange  where  effective  competition  among  exchanging 
producers  has  no  place.     The  most  important  example  of  this 


88  NOBMAL   VALUE. 

kind  is  furnished  by  international  trade.  As  between  the  pro- 
ducers in  different  nations,  whether  laborers  or  capitalists,  there 
is  no  effective  competition,  nothing,  therefore,  to  secure  that 
industrial  rewards  in  different  countries  shall  be  brought  into 
correspondence  with  industrial  sacrifices ;  nor,  consequently, 
that  international  values  shall  correspond  with  cost  of  produc- 
tion. Nevertheless  international  values,  or,  let  us  say,  the  rel- 
ative prices  of  the  products  of  different  nations,  do  not  vary  at 
random  irrespective  of  rule  or  measure,  but  exhibit  precisely 
the  same  tendency  to  gravitate  toward  a  central  point  as  is 
manifested  in  those  exchanges  which  are  governed  by  cost  of 
production.  A  less  striking  and  hitherto,  so  far  as  I  know, 
unnoticed,  example  of  the  same  kind  meets  us  in  domestic 
trade.  As  I  have  pointed  out,  cost  of  production  does  not 
control  value  universally  even  within  the  limits  of  a  single 
country :  in  respect  to  a  considerable  class  of  exchanges— all 
those,  namely,  which  take  place  between  what  I  have  called 
non-competing  industrial  groups — its  action  fails.  Yet  not  the 
less  we  observe  here,  as  in  international  trade,  the  phenomenon 
of  normal  value.  The  exchanges  between  the  non-competing 
groups — or,  let  us  say,  the  relative  prices  of  the  products  of 
such  non-competing  groups — though  unamenable  to  the  law 
of  cost,  are  not  without  a  controlling  force  which  restrains 
their  fluctuations  and  guides  them  toward  a  normal  result. 
This  is  the  phenomenon  with  which  we  have  now  to  deal ; 
and  the  question  to  be  considered  is  the  nature  of  the  force 
or  forces  which,  in  such  cases,  come  into  play. 

Fortunately  the  problem  has  already,  in  principle  at  least, 
been  solved  for  us  by  Mr.  Mill.  Mr.  Mill  has  not,  indeed,  car- 
ried his  solution  beyond  the  case  of  international  values;  but 
his  doctrine  is  manifestly  applicable  to  all  cases  in  which 
groups  of  producers,  excluded  from  reciprocal  industrial  com- 
petition, exchange  their  products.  Such  cases,  as  I  have 
shown,  occur  in   domestic   trade   in   the   exchanges  between 


"THE  EQUATION  OF  INTERNATIONAL  DEMAND."  89 

those  non-competing  industrial  groups  of  which  I  have  spoken. 
The  principle,  therefore,  which  operates  in  international  trade 
must  operate  here ;  and  little  more  needs  to  be  done,  to  com- 
plete the  theory  of  this  part  of  our  subject,  than  to  point  the 
application  of  Mr.  Mill's  doctrine  to  this  strictly  parallel  case. 

That  doctrine  may  be  thus  briefly  stated:  International  val- 
ues are  governed  by  the  reciprocal  demand  of  commercial 
countries  for  each  other's  productions,  or,  more  precisely,  by 
the  demand  of  each  country  for  the  productions  of  all  other 
countries  as  against  the  demand  of  all  other  countries  for  what 
it  produces;  the  result  of  this  play  of  forces  being  that,  on  the 
whole,  the  exports  of  each  country  discharge  its  liabilities  (of 
which  the  principal  are  on  account  of  its  imports)  toward  all 
other  countries.*  Whatever  be  the  exchanging  proportions — 
or,  let  us  say,  whatever  be  the  state  of  relative  prices — in  dif- 
ferent countries  which  is  requisite  to  secure  this  result,  those 
exchanging  proportions,  that  state  of  relative  prices,  will  be- 
come normal — will  furnish  the  central  point  toward  which  the 
fluctuations  of  international  prices  will  gravitate,  the  rule  to 
which  in  the  long  run  they  will  conform.  Such  is  the  law 
governing  international  values,  called  by  Mr.  Mill  "the  Equa- 
tion of  International  Demand."  What  we  have  now  to  con- 
sider is  the  mode  in  which  this  principle  operates  in  the  case 
of  the  non-competing  groups  of  domestic  trade. 

And  first,  in  what  sense  are  we  to  understand  "reciprocal 
demand"  as  applied  to  non-competing  industrial  groups? 
Manifestly,  in  conformity  with  the  analogy  of  the  international 
case,  as  the  demand  of  each  group  for  the  products  of  all  oth- 
er groups  compared  with  the  demand  of  all  other  groups  for 
what  this  group  produces.     How,  again,  are  we  to  measure 


*  As  the  doctrine  is  ordinarily  stated,  the  exports  of  each  country  are  said  to 
balance  its  imports,  but,  as  I  shall  liereafter  show,  this  mode  of  stating  it  is  not 
accurate.     See  post,  part  iii. ,  chap.  iii. 


90  NORMAL  VALUE. 

such  demand?  Again  I  say,  in  conformity  with  the  same 
analogy,  by  the  quantity  of  the  products  of  each  group  avail- 
able for  the  purchase  of  the  products  of  other  groups;  while 
the  products  of  other  groups  available  for  the  purchase  of  tiae 
products  of  any  given  group  will  measure  their  demand  for 
the  products  of  that  group.  Lastly,  how  are  we  to  understand 
the  "  Equation  of  Demand,"  as  applied  to  non  -  competing 
groups?  Still  following  the  international  analogy,  I  reply,  as 
such  a  state  of  exchanging  proportions  among  the  products  of 
the  various  groups — or,  let  us  say,  as  such  a  state  of  relative 
prices  among  such  products  as  shall  enable  that  portion  of  the 
products  of  each  group  which  is  applied  to  the  purchase  of  the 
products  of  all  other  groups  to  discharge  its  liabilities  toward 
those  other  groups.  The  two  cases  thus  run  strictly  on  all- 
fours,  and  the  play  of  the  forces  in  action  is  in  all  respects 
the  same.  As  in  international  trade  an  increased  demand  for 
the  products  of  other  countries  will,  other  things  being  equal, 
affect  international  values — or,  let  us  say,  affect  the  relative 
prices  of  the  products  of  different  countries — unfavorably  for 
the  country  whose  demand  is  increased ;  and  as,  again,  the 
converse  of  this  condition,  an  increased  demand  by  other  coun- 
tries for  the  products  of  a  given  country,  will  operate  in  the 
contrary  direction  ;  so  it  will  be  in  the  exchanges  which  take 
place  between  non-competing  domestic  groups.  Whatever  in- 
creases the  demand  of  a  given  group  for  the  products  of  out- 
side, that  is  to  say  non-competing,  industries,  or  (what  comes 
to  the  same  thing)  whatever  increases  the  supply  of  its  prod- 
ucts available  for  the  purchase  of  the  products  of  such  indus- 
tries, will,  other  things  being  the  same,  depress  the  prices  of 
its  products  in  relation  to  the  prices  of  the  products  of  the  in- 
dustries against  which  they  are  exchanged,  and  vice  versa; 
while  whatever  increases  the  demand  of  the  outside  industries 
for  the  products  of  a  given  group  will  have  the  contrary  ef- 
fect, and  will  raise  the  level  of  its  prices  in  relation  to  those 


NATURE  OF  BECIPBOCAL  DEMAND.  91 

of  the  non -competing  groups  with  which  it  trades,  and  vice 
versa.  The  relative  position,  commercially  considered,  of  each 
group  may  thus  be  affected  either  by  an  increase  or  diminu- 
tion of  its  own  products  not  consumed  within  the  group,  or  by 
an  increase  or  diminution  of  the  products  of  other  groups,  so 
far  as  those  products  are  disposable  for  the  purchase  of  the 
products  of  the  group  in  question.  Such  is  the  nature  of  "re- 
ciprocal demand,"  and  of  its  mode  of  action  as  between  the 
non-competing  groups  of  domestic  industry.  As  the  reader 
will  observe,  it  is  simply  "supply  and  demand"  taken  twice 
over,  first  in  the  sale  and  then  in  the  purchase,  or,  rather,  we 
may  describe  it  as  Supply  and  Demand  contemplated  at  once 
from  both  sides  of  a  completed  exchange. 

But  it  may  not  be  at  once  apparent  how  a  principle  of  this 
character  is  fitted  to  accomplish  the  result  ascribed  to  it — that 
of  determining  normal^  as  distinguished  from  temporary  or 
market,  value.  As  I  have  remarked.  Reciprocal  Demand  is 
merely  duplicate  Supply  and  Demand  regarded  in  its  full  sig- 
nificance; but  Supply  and  Demand,  as  we  are  most  familiar 
with  their  action,  are,  in  their  relation  to  prices,  merely  proxi- 
mate agencies,  governing  indeed  the  fluctuations  of  the  mar- 
ket, but  themselves  controlled  by  forces  lying  deeper  in  the 
economy  of  production.  How  then  does  it  happen  that,  in 
the  cases  under  consideration,  those  agencies  are  capable  of 
doing  more  than  this — capable  of  determining,  not  simply  the 
fluctuations  of  the  market,  but  the  rule  to  which,  in  the  long- 
run,  the  fluctuations  of  the  market  conform? 

The  answer  to  this  question  is  to  be  found  in  the  circum- 
stances which  give  stability  to  Reciprocal  Demand  in  the  class 
of  exchanges  we  are  now  considering.  Reciprocal  Demand, 
or,  if  the  reader  prefers  it.  Supply  and  Demand,  in  relation  to 
a  particular  commodity,  or  even  to  a  considerable  number  of 
commodities,  may,  as  we  know,  vary  in  almost  any  conceivable 
degree,  and  with  great  rapidity.     But  when  we  consider  them 


92  NORMAL  VALUE. 

as  affecting  aggregates  of  transactions  carried  on  between  limit- 
ed bodies  of  producers — for  example,  between  independent  na- 
tions, or  between  non-competing  industrial  groups — the  case  is 
very  different ;  and  the  limits  within  which  variation  is  possi- 
ble are  in  fact  pretty  strictly  determined ;  for  in  this  case  the 
measure  of  the  aggregate  demand  of  each  trading  body  will  be 
the  total  of  its  productions,  and  the  measure  of  its  demand  for 
the  productions  of  the  bodies  with  which  it  trades  will  be  the 
proportion  of  its  total  production  which  it  desires  to  apply  to 
the  purchase  of  the  productions  of  those  bodies.  Now,  in  the 
absence  of  any  great  changes  in  the  conditions  of  productive 
industry,  and  of  legislation  specially  contrived  for  this  purpose, 
neither  the  aggregate  production  of  a  community  nor  the  pro- 
portion of  its  means  employed  in  interchanges  with  other  com- 
munities can  easily  undergo  on  a  sudden  serious  variation. 
The  total  production  will  depend  on  the  nature  and  extent  of 
its  resources;  and  the  proportion  employed  in  external  trading 
on  the  comparative  character  of  those  resources  as  they  stand 
related  to  those  of  the  communities  with  which  it  trades. 
These,  indeed,  are  not  circumstances  which  can  be  regarded  as 
absolutely  fixed.  On  the  contrary,  the  conditions  of  produc- 
tive industry  over  the  best  portion  of  the  industrial  world  are 
and  have  for  long  been  pretty  steadily  progressive.  But  the 
progress,  though  steady,  has  in  general  been  slow.  Sudden 
changes,  at  least  on  a  scale  large  enough  to  effect  great  aggre- 
gates of  transactions,  but  rarely  occur ;  and  further,  what  is 
pertinent  to  our  purpose,  where  important  improvements  in 
productive  industry  do  happen,  they  are  seldom  confined  to  a 
single  community,  but,  after  an  interval  more  or  less  brief,  are 
in  general  shared  by  other  communities,  so  that  the  relative 
positions  of  the  various  trading  bodies  arc  in  the  end  but 
slightly  affected.  It  follows  that  the  demand  of  such  bodies, 
however  it  may  vary  in  respect  to  particular  commodities, 
can  not  easily  as  an  aggregate  undergo  any  great  or  sudden 


NATURE  OF  BECIPBOCAL  DEMAND.  93 

change ;  while  their  reciprocal  demand  for  each  other's  pro- 
ductions, which  expresses  their  relative  industrial  condition, 
will  be  still  less  liable  to  serious  or  abrupt  disturbance.  Here, 
then,  we  find  the  conditions  fitted  to  produce  that  stability  of 
exchanging  relations  which  is  implied  in  the  term  "normal 
value."  While  the  prices  of  particular  commodities  may  fluc- 
tuate indefinitely  in  international  as  in  other  trade,  the  same 
possibility  does  not  exist  for  the  prices  of  aggregates  of  com- 
modities exchanged  by  definite  groups  of  producers,  such  as 
independent  nations,  or  the  non-competing  sections  in  domestic 
industry.  The  limits  to  such  fluctuations  are  set  in  the  limit- 
ed purchasing  power,  incident  to  the  limited  productive  power, 
at  any  given  tinie  possessed  by  such  trading  groups.  It  is  in 
this  way  that  a  normal  relation  arises  in  the  terms  of  the  trans- 
actions carried  on,  and  that  a  central  point  is  furnished  toward 
which  the  fluctuations  of  the  market  gravitate,  performing  in 
such  trade  the  same  function  discharged  under  a  regime  of  com- 
petition by  the  principle  of  cost. 

Cost  of  Production  and  Eeciprocal  Demand  in  the  sense  ex- 
plained, it  thus  appears,  perform  in  certain  circumstances  sim- 
ilar economic  offices.  It  remains  now  to  point  out  an  impor- 
tant difference  in  their  modes  of  action  and  in  the  character 
of  the  results  which  flow  from  them.  They  each,  as  I  have 
said,  furnish  a  centre  about  which  market  values  gravitate ; 
but  there  is  this  difference  between  the  two  cases :  The  centre 
furnished  by  Cost  of  Production  stands  related  to  the  fluctua- 
tions of  the  individual  commodity  ;  that  supplied  by  Recipro- 
cal Demand  to  the  average  fluctuations  of  considerable  aggre- 
gates of  commodities.  A  reduction  in  the  cost  of  producing 
a  hat  will  lower  its  price,  but  will  have  no  tendency  to  affect 
the  price  of  any  other  thing.  But  an  alteration  in  the  recip- 
rocal demand  of  two  trading  nations  will  act  upon  the  price, 
not  of  any  commodity  in  particular,  but  of  every  commodity 
which  enters  into  the  trade.     What  such  an  alteration  necessi- 


94  NORMAL   VALUE. 

tates  is  a  change  in  the  average  terms  on  which  the  trade  is 
carried  on ;  but  it  decides  nothing  as  to  the  details  by  which 
the  required  average  shall  be  attained  and  maintained.  This 
is  determined,  not  by  international  demand,  but  by  those  cir- 
cumstances in  the  internal  industries  of  each  country  which 
regulate  in  each  the  relative  prices  of  its  products.  And  sim- 
ilarly in  the  interchanges  of  non-competing  domestic  groups, 
what  the  reciprocal  demand  of  the  groups  determines  is  the 
average  relative  level  of  prices  within  each  group  ;  the  distri- 
bution of  price  among  the  individual  products  being  regulated 
by  the  cause  which  governs  value  within  it,  namely  cost  of 
production. 

The  net  result  would  seem  to  be  this:  Reciprocal  Interna- 
tional Demand  determines  the  average  level  of  prices  through- 
out the  entire  trade  of  each  commercial  country  in  relation  to 
that  prevailing  in  other  countries  in  commercial  connection 
with  it.  Reciprocal  Domestic  Demand  determines  certain 
minor  relative  averages  extending  over  classes  of  articles,  the 
products  of  non-competing  industrial  groups;  while  Cost  of 
Production  acts  upon  particular  commodities,  and,  in  each  case, 
within  the  range  of  industrial  competition,  determines  their  rel- 
ative prices.  The  actual  price,  therefore,  of  any  given  commod- 
ity will,  it  is  evident,  be  the  composite  result  of  the  combined 
action  of  these  several  agencies. 

Another  distinction  needs  to  be  noticed  between  Reciprocal 
Demand  and  Cost  of  Production  in  their  operation  upon  nor- 
mal value.  The  former  is,  on  the  whole,  far  more  steady  and 
equable  in  its  action  than  the  latter.  Tiie  reason  is  plain. 
Changes  in  cost  of  production  depend  mainly  on  the  pi'ogress 
of  the  industrial  arts,  and  this  has  for  some  time  been  and,  we 
may  perhaps  assume,  is  likely  for  a  long  time  to  continue  to 
be,  remarkably  rapid.  Thus  we  find  in  the  course  of  the  pres- 
ent century  an  immense  reduction  in  the  costs  of  producing  a 
large  number  of  articles  of  general  consumption,  accompanied 


NATURE  OF  BECIPEOCAL  DEMAND.  95 

by  a  corresponding  reduction  in  their  value.  On  the  other 
hand,  changes  in  reciprocal  demand  are  chiefly  due  to  moral, 
social,  and  political  causes,  operating  on  a  scale  large  enough 
to  affect  the  relative  positions  of  considerable  bodies  of  men. 
Such  changes  are  necessarily  of  slow  accomplishment;  and 
consequently  the  variations  in  value  which  result  from  them 
are  rarely  of  a  striking  character,  and  in  general  proceed  so 
slowly  that  they  can  seldom  be  perceived  unless  the  compari- 
son be  made  between  prices  taken  at  periods  separated  by  con- 
siderable intervals  of  time.  Still  such  changes  do  occur,  and 
international  values,  as  well  as  the  corresponding  class  of  values 
in  domestic  trade,  respond  to  them.  For  example,  I  think  we 
may  assume  that  the  adoption  of  free  trade  by  England  has 
improved  her  international  position  in  the  trade  of  the  world. 
1  do  not  refer  to  the  extension  of  her  trade,  which,  as  all  the 
world  knows,  has  been  enormous,  but  to  the  terms  on  which 
it  is  carried  on.  A  given  exertion  of  English  industry  will 
now  command  in  the  exchange  with  foreign  countries  the 
product  of  a  larger  exertion  of  foreign  industry  than  former- 
ly. In  the  domestic  sphere,  probably  the  most  potent  agency 
affecting  reciprocal  demand  is  the  progress  of  popular  educa- 
tion. Supposing,  for  example,  that  the  system  of  primary  ed- 
ucation now  being  established  in  this  country  proves  as  suc- 
cessful as  the  friends  of  education  desire;  and  supposing  again, 
and  more  particularly,  that  effective  provision  is  made  in  it  for 
facilitating  the  ascent  of  promising  boys  from  the  lower  to  the 
higher  educational  levels,  I  think  we  may  with  some  confi- 
dence predict  that  the  movement  will  issue  in  a  considerable 
change  in  the  relative  prices  of  certain  classes  of  commodities 
in  this  country ;  nor  can  we  have  much  difficulty  in  perceiving 
what  will  be  the  general  direction  of  the  change.  Plainly  the 
effect  will  be  to  augment  the  number  of  skilled  workmen  in 
relation  to  the  unskilled,  and  of  highly  skilled  workmen  in 
relation  to  workmen   possessing  skill  of  the  more  common 


96  NORMAL   VALUE. 

sorts.  The  social  wall  of  partition  which  now  divides  the 
non-competing  groups  will  to  a  large  extent  be  broken  down, 
and  many  of  those  occupying  the  lower  levels  will  take  ad- 
vantage of  the  breach  to  press  into  those  above  them.  The 
result  will  be  a  change  in  the  reciprocal  demand  of  the  several 
groups.  The  demand  of  the  groups  representing  the  higher 
sorts  of  industrial  skill  will  increase  relatively  to  that  of  the 
groups  representing  the  lower;  or,  to  put  the  same  point  in  a 
different  form,  the  supply  of  the  products  of  the  former  groups 
will  increase  relatively  to  that  of  the  products  of  the  latter. 
The  inevitable  consequence  must  be  a  change  in  relative  prices 
unfavorable  to  the  higher,  and  in  a  corresponding  degree  fa- 
vorable to  the  lower  sorts,  of  skilled  industry.  In  a  word,  the 
qualified  monopolies  resting  upon  social  conditions  which  now 
exist  will  be  still  further  qualified :  the  range  of  competition 
will  be  enlarged;  and,  just  in  proportion  as  these  results  are 
attained,  relative  prices,  and  with  them  relative  wages,  will  be 
made  to  approximate,  more  closely  than  at  present,  to  the  rule 
of  cost.  We  may  illustrate  the  case  by  the  state  of  things  in 
new  colonies.  There,  owing  to  causes  precisely  similar  to  those 
which  the  educational  movement  is  tending  to  develop  here — 
owing,  that  is  to  say,  to  the  great  equality  of  conditions  pre- 
vailing among  the  industrial  population — the  coarser  kinds  of 
labor  and  the  lower  sorts  of  skill  are  not  merely  positively, 
but  comparatively,  in  relation  to  the  finer  and  higher  sorts,  far 
more  highly  remunerated  than  they  are  at  present  with  us. 
The  explanation  is  that  which  has  just  been  given :  competi- 
tion has  there  a  wider  range;  and  wherever  this  is  so,  prices 
and  remuneration  will  represent  more  truly  the  actual  sacri- 
fices undergone  by  producers. 


CHAPTEE    IV. 

MARKET  VALUE. 

§  1.  The  nature  of  Normal  Value  has  been  discussed  in  the 
preceding  chapter.  As  was  there  pointed  out,  the  propor- 
tion which  it  represents  is  not  necessarily  that  which  is  real- 
ized in  any  actual  sale,  but  that  to  which  all  sales,  in  the  case 
of  commodities  which  possess  normal  value,  tend  to  conform. 
The  problem  which  we  have  now  to  consider  is  that  presented 
by  actual  sales.  What  are  the  conditions  which  determine 
the  proportions  in  which  commodities  exchange  for  each  other 
on  any  given  occasion  in  any  given  market?  More  briefly, 
what  is  the  explanation  of  market  prices?  This  question, 
after  having  been  discussed  by  economists  from  Turgot  and 
Adam  Smith  to  Mill,  was  at  length  supposed  to  have  received 
its  definitive  solution  in  the  chapter  on  "Demand  and  Supply  " 
in  the  Principles  of  Political  Economy  by  the  latter  authority. 
That  solution,  however,  has  lately  been  challenged  by  Mr. 
Thornton,  I  must  own  it  seems  to  me,  so  far  as  the  negative 
portion  of  his  criticism  is  concerned,  with  success.  As  re- 
gards, however,  the  explanation  he  has  offered  in  lieu  of  that 
which  he  has  displaced,  I  fail  to  discover  in  it  what  can  be 
considered  a  satisfactory  account  of  the  phenomenon  under 
discussion.  According  to  Mr.  Thornton,  market  prices  de- 
pend upon  "competition;"  while  of  competition  he  tells  us 
that,  "  if  it  can  properly  be  said  to  depend  on  any  thing,  it  de- 
pends partly  on  individual  necessity,  partly  on  individual  dis- 
cretion ;  and  as  for  the  first  of  these  there  is  proverbially,  and 
for  the  other  manifestly,  no  law,  so  likewise  is  there  no  law  of 

7 


98  MARKET  VALVE. 

competition.  Neither,  if  there  be  no  law  of  competition,  and 
if  competition  be,  as  it  has  been  shown  to  be,  the  determining- 
cause  of  price,  can  there  be  any  hiw  of  price."  As  I  do  not 
admit  that  there  is  ''no  haw"  for  '-individual  necessity"  any 
more  than  I  admit  that  there  is  "no  law"  for  "individual  dis- 
cretion"— understanding  "law"  in  the  scientific  sense  of  the 
word,  which  alone  is  that  with  which  Political  Economy  is 
concerned — I  should  be  unable  to  accept  Mr.  Thornton's  con- 
clusion, even  though  his  analysis  of  "competition  "  were  much 
more  satisfactory  than  it  seems  to  me  to  be.  For  my  part,  I 
believe  that,  whether  we  are  able  to  discover  it  or  not,  there 
is  a  law  of  market  price,  as  there  is  a  law  of  normal  price,  as 
there  is  a  law  of  wages,  of  profits,  of  rent,  as  there  are  laws  of 
the  winds  and  tides  and  seasons,  and  of  the  phenomena  of 
external  nature — a  law  in  the  only  sense  in  which  law  can  be 
predicated  of  natural  objects ;  namely,  as  consisting  in  the  con- 
stancy of  the  relation  between  facts  and  the  conditions  which 
produce  them. 

§  2.  Mai'ket  price  —  I  speak  now  exclusively  of  price  in 
wholesale  markets — has  from  the  first  been  seen  to  be  con- 
nected with  the  agencies  of  Supply  and  Demand  ;  it  has  al- 
ways been  very  obvious  that  an  increase  of  supply  tends  to 
lower  price,  and  an  increase  of  demand  to  raise  it;  but  be- 
yond this  rather  crude  generalization  economic  speculation 
did  not  for  some  time  pass.  To  furnish  what  deserves  to  be 
called  a  law  of  the  phenomenon,  it  is  evidently  necessary  to 
determine  with  some  degree  of  precision  the  elements  that  en- 
ter into  Supply  and  Demand  when  acting  upon  the  prices  of 
the  market,  and  the  mode  in  which  these  two  agencies  co-op- 
erate to  produce  the  actual  result.  In  other  words,  Demand 
and  Supply  must  be  defined,  and  the  manner  of  their  influence 
ascertained.  The  following  was  Adam  Smith's  contribution 
toward  the  solutio!i  of  this  j^roblcm:   "The  market  price  of 


ADAM  SMITH'S  DOCTRINE.  99 

every  particular  commodity  is  regulated  by  the  proportion 
between  the  quantity  which  is  actually  brought  to  market  and 
the  demand  of  those  who  are  willing  to  pay  the  natural  price 
of  the  commodity,  or  the  whole  value  of  the  rent,  labor,  and 
profit  which  must  be  paid  in  order  to  bring  it  thither."*  Ac- 
cording to  this,  "Supply"  is  to  be  understood  as  the  quantity 
of  a  commodity  actually  brought  to  market,  and  "Demand" 
as  the  desire  to  purchase  felt  by  those  who  are  willing  to  pay 
the  natural,  or  (as  I  have  phrased  it)  the  normal,  price;  the 
terms  of  the  exchange  in  the  particular  market  being  regu- 
lated by  the  "proportion"  between  these  two  things.  Every 
economist  knows  the  criticism  passed  by  Mr.  Mill  on  this 
doctrine. 

"These  phrases,"  he  says,  "fail  to  satisfy  any  one  who  re- 
quires clear  ideas  and  a  perfectly  precise  expression  of  them. 
Some  confusion  must  always  attach  to  a  phrase  so  inappropri- 
ate as  that  of  a  ratio  between  things  not  of  the  same  denomina- 
tion. What  ratio  can  there  be  between  a  quantity  and  a  desire, 
or  even  a  desire  combined  with  a  power ?"f  This  criticism 
has  been  generally  acquiesced  in ;  but  I  have  endeavored  in 
a  former  chapter;]:  to  show  that  it  is  not  conclusive ;  that  in 
truth  Supply  (in  the  sense  in  which  it  affects  price)  is  not  sim- 
ply a  quantity,  but  a  quantity  accompanied  by  a  mental  feel- 
ing, as  Demand  is  not  simply  a  mental  feeling,  but  a  mental 
feeling  accompanied  by  a  quantity,  the  quantity,  namely,  of 
purchasing  power  offered  by  the  demander ;  in  short,  that 
Supply  and  Demand  are  things  essentially  of  the  same  order, 
of  the  same  denomination,  and  such  therefore  as  may  properly 
be  regarded  as  bearing  a  ratio  to  each  other.  But  though  not 
open,  as  it  seems  to  me,  to  Mr,  Mill's  criticism,  Adam  Smith's 


*  "Wealth  of  Nations,"  book  i.,  chap.  vii. 

t  "Principles  of  Political  Economy,"  vol.  i.,  p.  549, 

X  See  ante,  pp.  S.'),  26. 


100  MARKET  VALUE. 

doctrine  can  less  easily  be  defended  against  objections  of  an- 
other kind.  It  is  not  quite  clear  from  the  passage  in  what 
sense  be  uses  the  word  "  naarket,"  whether  as  a  sort  of  abstract 
term  to  comprise  all  places  where  things  are  bought  and  sold, 
or  as  signifying  some  one  particular  or  given  place  of  this 
kind.  I  am,  for  my  part,  disposed  to  understand  him  in  the 
latter  sense;  indeed  the  former  would  hardly  have  satisfied 
the  requirements  of  the  problem  he  had  to  consider;  and  tak- 
ing the  word  in  this  sense,  his  statement  is  that  the  price  of  a 
commodity  in  any  particular  market  is  regulated  by  the  "pro- 
portion" which  the  quantity  of  it  in  that  market  bears  to  the 
demand  for  it  (in  the  sense  defined)  there  existing.  Now  it 
will  be  seen  on  reflection  that  this  statement  is,  as  a  matter  of 
fact,  untrue.  The  price  of  corn,  for  example,  in  a  given  mar- 
ket does  not  depend  (other  things  there  being  supposed  con- 
stant) on  the  quantity  of  corn  brought  to  that  market,  under- 
standing by  this  all  that  the  dealers  are  then  and  there  pre- 
pared to  sell.  For  example,  it  often  happens  that  intelligence 
received  during  the  holding  of  a  market  respecting  supply  in 
some  remote  quarter  of  the  world  affects  price,  though  no 
change  has  been  made  in  the  quantity  of  the  commodity  im- 
mediately available  in  the  particular  market.  And  occasions 
have  occurred  when  a  sudden  change  of  weather  in  some  criti- 
cal period  of  the  year,  from  the  effect  it  is  supposed  likely  to 
produce  on  the  harvest,  has  led  to  a  similar  result.  It  is  evi- 
dent, therefore,  that  the  supply  which  constitutes  one  factor  in 
the  determination  of  market  price  is  not  simply  the  quantity 
of  a  commodity  present  in  a  particular  market.  A  similar 
criticism  may  be  passed  upon  Adam  Smith's  definition  of  "de- 
mand." It  is  not  true  that  the  demand  which  constitutes  the 
other  factor  in  the  case  is  always,  or  necessarily,  "the  demand 
for  the  commodity  at  its  natural  price."  Suppose  the  selling 
price  at  a  particular  time  and  place  to  be  above  the  natural 
price,  so  much  of  the  demand  as  refuses  to  rise  beyond  the 


-   MR.  MILL'S  DOCTRINE.  101 

natural  price  ceases  to  affect  the  result ;  while,  on  the  other 
hand,  on  the  supposition  that  the  selling  price  were  lower 
than  the  natural  price,  the  result  would  be  affected  by  a  de- 
mand at  a  lower  than  the  ng.tural  price,  namely,  by  any  de- 
mand which  is  content  to  give  the  selling  price,  or  any  price 
above  that.  Lastly,  even  though  the  definitions  of  "supply" 
and  "demand"  given  by  Adam  Smith  could  be  shown  to 
satisfy  the  conditions  of  the  case,  which  we  have  seen  they  do 
not,  the  statement  that  market  price  is  regulated  by  the  "pro- 
portion "  betwe'en  them,  while  we  are  left  uninformed  as  to  the 
nature  of  this  proportion,  can  not  but  be  regarded  as  too 
vague  to  fulfill  the  requirements  of  a  scientific  theory. 

§  3.  I  turn  now  to  Mr.  Mill's  doctrine  of  Market  Price.  As 
I  have  just  said,  that  doctrine  has  been  challenged  by  Mr. 
Thornton,  and,  in  my  opinion,  successfully;  but  I  prefer  to 
state  my  objection  to  it  in  my  own  way.  According  to  Mr. 
Mill,  demand  is  measured,  not  by  the  purchasing  power  offered 
in  support  of  the  desire  to  purchase,  but  by  the  quantity  of  the 
commodity  demanded  at  the  selling  price  in  a  given  market; 
and  similarly  the  measure  of  supply  is  the  quantity  offered  at 
the  selling  price.  Understanding  Demand  and  Suppl}^  in  these 
senses,  he  laid  it  down  that  the  actual  price  ruling  in  any  given 
market  is  the  price  which  equalizes  demand  and  supply.  As 
a  matter  of  fact,  however,  it  may  be  pointed  out,  and  has  been 
pointed  out  by  Mr.  Thornton,  that  the  demand  in  the  market 
at  the  selling  price  may  be  greater  than  the  supply  forth-com- 
ing in  that  market  can  satisfy  ;  as,  on  the  other  -hand,  the  sup- 
ply at  the  selling  price  may  be  in  excess  of  what  the  actual  de- 
mand at  that  price  will  take  off.  In  either  of  these  cases  (and 
one  or  other  of  them  is  the  case  of  almost  all  markets)  Supply 
and  Demand  are  not  equalized.  In  all  such  instances,  there- 
fore, Mr.  Mill's  theory  fails  to  explain  the  phenomenon  of  mar- 
ket price.     To  this  objection  ]\[r.  Mill  has  replied  by  saying 


102  MAEKET  VALUE. 

that  "reserving  a  price  is  to  all  intents  and  purposes  withdraw- 
ing supply" — in  other  words,  so  much  of  the  supply  as  is  not 
sold,  either  because  the  owner  is  dissatisfied  with  the  current 
price,  or  can  not  find  sufficient  purchasers  at  that  price,  is  not 
to  be  counted  as  supply. 

"  When  no  more  than  forty  shillings  a  head  can  be  obtained  for  sheep, 
all  sheeji  whose  owners  are  determined  not  to  sell  them  for  less  than  fifty 
shillings  are  out  of  the  market,  and  form  no  part  at  all  of  the  supply  icMch 
is  naiD  determining  j)rice.  They  may  have  been  offered  for  sale,  but  they 
have  been  withdrawn In  the  mean  while,  the  |)rice  has  been  de- 
termined without  any  reference  to  his  [the  owner's]  withheld  stock,  and 
determined  in  such  a  manner  that  the  demand  at  that  j^rice  shall  (if  pos- 
sible) be  equal  to  the  supply  which  the  dealers  are  willing  to  part  with  at 
that  ijrice.  The  economists  who  say  that  market  price  is  determined  by 
demand  and  supply  do  not  mean  that  it  is  determined  by  the  whole  sup- 
ply which  would  be  forthcoming  at  an  unattainable  price,  any  more  than 
by  the  whole  demand  that  would  be  called  forth  if  the  article  could  be 
had  for  an  old  song.  They  mean  that,  whatever  the  price  turns  out  to 
be,  it  will  be  such  that  the  demand  at  that  price,  and  the  supply  at  that 
price,  will  be  equal  to  one  another."* 

It  is  evident  that  the  same  reasons  which  require  that  Sup- 
ply should  be  limited  to  so  much  of  the  commodity  as  is  dis- 
posed of  in  actual  sale,  would  make  it  necessary  that  Demand 
should  be  limited  to  so  much  of  the  desire  to  purchase  as  finds 
satisfaction  in  actual  purchase;  since  otherwise  there  would  be 
no  security  that  it  might  not  exceed  Supply.  So  explained,  it 
can  not  be  denied  that  Mr.  Mill's  position  is  logically  impreg- 
nable. Unfortunately,  however,  the  same  limitations  which 
render  it  logically  impregnable  make  it  also  not  worth  defend- 
ing; for,  understood  in  the  sense  in  which  the  terms  have  now 
been  defined,  the  doctrine  of  the  equality  of  Demand  and  Sup- 
ply as  the  condition  of  market  pi-icc  becomes  a  inere  identical 

*  Fortnightly  Review,  May,  1860,  Mr.  Mill's  review  of  Mr.  Thornton's  "  La- 
lK)r,"pp,  r,12,  5i;5. 


MB.  MILL'S  DOCTRINE.  10:i 

proposition.  The  quantity  demanded  and  the  quantity  supplied 
at  the  market  price  are  necessarily  equal  when  the  quantity 
demanded  is  only  another  name  for  the  quantity  bought,  and 
the  quantity  supplied  another  name  for  the  quantity  sold. 
They  are  necessarily  equal,  since  they  are  one  and  the  same 
quantity.  Mr.  Mill's  doctrine,  then,  limited  as  he  has  limited 
it,  is  undeniably  true;  but  the  question  remains,  what  light 
does  it  throw  upon  the  phenomenon  it  undertakes  to  explain? 
— how  far  can  it  be  considered  as  stating  the  law  of  market 
prices?  We  desire  to  know  the  circumstances  which  deter- 
mine price;  and  we  are  told  that  the  selling  price  is  always 
such  that  the  quantity  of  a  commodity  purchased  in  a  given 
market  is  equal  to  the  quantity  sold  in  that  market.  The 
statement  is  incontrovertible,  but  I  fail  to  perceive  how  it  helps 
us  to  understand  the  facts.  Further,  the  limitation  by  which 
the  doctrine  is  rescued  is  itself  open  to  serious  objection.  In 
the  passage  I  have  quoted  it  is  stated  that  the  portion  of  the 
supply  which  is  reserved  for  future  sale  "  forms  no  part  of  the 
supply  which  is  now  determining  price."  Here  I  join  issue  on 
a  question  of  fact.  I  contend  that,  in  coming  to  a  decision  on 
the  actual  price,  the  dealers  in  a  market  take  account,  not 
merely  of  the  quantity  of  the  commodity  that  is  there  actually 
sold,  but  of  all  the  commodity  in  the  market;  and  not  merely 
of  this,  but  of  the  supply  obtainable  from  other  quarters.  On 
this  point  I  can  onl}"-  appeal  to  foots.  It  appears  to  me  cer- 
tain that  the  supply  which  determines  price  is  quite  as  much 
the  supply  that  is  not  sold  as  the  supply  that  is  sold ;  and  the 
demand  quite  as  much  the  demand  that  is  not  satisfied  as  the 
demand  tliat  is  satisfied.  In  other  words,  supply  and  demand 
outside  the  market  are  among  the  conditions  which  determine 
price  within  the  market.  But  if  so,  Mr.  Mill's  doctrine  not 
merely  fails  to  solve  the  problem  of  market  price,  but  pointed- 
ly excludes  from  consideration  conditions  which  are  essential 
to  the  solution  of  that  problem.     Under  these  circumstances  I 


104  MARKET  VALUE. 

shall  perhaps  be  pardoned  for  attempting  some  more  precise 
statement  of  the  facts  governing  the  phenomenon  than  is  fur- 
nished by  the  current  doctrine. 

§  4.  In  order  to  bring  the  terms  of  our  theory  into  conform- 
ity with  the  facts  of  the  case,  it  appears  to  me  that  we  must 
give  to  the  words  "'supply"  and  "demand"  a  much  more  ex- 
tended signification  than  is  given  to  them  in  the  formulas  ei- 
ther of  Adam  Smith  or  of  Mill.  By  "  supply,"  as  affecting 
market  price,  I  would  understand  not  merely  the  quantity  of 
a  commodity  sold,  offered  for  sale,  or  present  in  a  given  mar- 
ket, but  the  quantity  intended  for  sale  wherever  it  exists  which 
the  dealers  in  the  particular  market  know  or  believe  to  be 
available,  to  meet,  within  certain  limits  of  time,  the  demand 
which  falls  within  the  range  of  their  dealing ;  and  by  "  de- 
mand," a  strictly  analogous  conception,  namely,  the  desire,  so 
far  as  accompanied  by  purchasing  power  anywhere  existing 
for  the  commodity,  which,  in  the  opinion  of  the  dealers  in  the 
market,  admits  of  being  satisfied  within  certain  limits  of  time 
by  the  attainable  supply ;  the  "  certain  limits  of  time  "  in  each 
case  being  the  period  intervening  between  the  time  of  sale  and 
that  at  which  fresh  supplies  can  be  brought  forward  from  the 
ordinary  sources  of  production.  I  am  far  from  thinking  that 
these  definitions  are  free  from  flaw,  or  that  cases  of  supply  and 
demand  affecting  market  price  may  not  be  found  which  will 
not  easily  fall  within  their  scope,  but  I  believe  the}^  comprise 
the  most  important  conditions  determining  the  result,  and  I 
am  sure  that  no  less  extensive  definitions  would  be  even  ap- 
proximately adequate. 

Understanding,  then.  Demand  and  Supply  in  the  senses  de- 
fined, as  the  factors  which  conjointly  produce  the  phenomenon, 
we  have  next  to  consider  the  manner  of  their  operation.  This, 
it  is  evident,  can  only  be  indirect,  since  price  expresses  a  con- 
tract between  human  beings,  whose  wills,  therefore,  must  form 


CONSTANCY  OF  RELATION.  105 

the  primary  link  in  the  causal  chain.  As  we  have  seen,  the 
notion  of  Adam  Smith  was,  and  this  is  probably  still  the  pre- 
vailing idea,  that  the  result  is  regulated  by  the  "  proportion  " 
between  demand  and  supply — this  proportion,  as  we  must  sup- 
pose, producing  its  effect  through  the  minds  of  those  who  take 
part  in  the  exchange.  I  have  already  stated  my  reasons  for 
regarding  Demand  and  Supply  as  ideas  of  the  same  order,  be- 
tween which,  therefore,  a  proportion  may  properly  be  assumed 
to  exist.  But  to  render  Adam  Smith's  doctrine  effectual  for 
its  purpose,  we  must  not  only  suppose  a  proportion  existing 
between  demand  and  suppl}',  but  also  that  between  this  pro- 
portion and  the  market  price  there  is  some  constancy  of  rela- 
tion, such  that,  knowing  the  relation  in  any  given  case,  we 
should  be  able  to  predict  what  the  price  would  be  in  the  event 
of  a  change  in  the  conditions  of  the  market.  Now  this  is  what 
I  believe  it  would  be  quite  impossible  to  establish.  At  all 
events,  it  may  be  shown  that  the  formula,  if  it  were  possible  to 
evolve  one,  would  need  to  be  different  for  every  different  kind 
of. commodity,  and  to  be  altered  with  every  change  in  either 
the  amount  or  the  distribution  of  purchasing  power  in  a  com- 
munity. Thus  a  change  in  the  supply  of  a  necessary  of  life 
is,  as  has  often  been  pointed  out,  capable  of  producing  effects 
on  price  much  greater  than  in  proportion  to  the  extent  of  the 
change.  A  reduction  of  one-fourth,  or  one-third,  for  instance, 
in  the  food  of  a  people  might  easily  issue  in  a  twofold  or  three- 
fold advance  of  price  ;  while  an  equal  change  in  the  supply  of 
a  comfort  or  convenience,  which  may  easily  be  dispensed  with, 
but  may  also  by  increased  cheapness  rapidly  attract  a  larger 
demand,  is  generally  attended  with,  effects  on  price  much  less 
marked.  And,  as  I  have  said,  these  results  would  be  further 
varied  by  every  change  in  the  amount  or  the  distribution  of 
the  available  purchasing  power.  For  these  reasons  it  appears 
to  me  that  the  idea  of  a  proportion,  as  furnishing  a  clue  to  the 
connection  of  demand  and  supply  with  market  price,  must  bf" 


106  /  MARKET  VALUE. 

abandoned,  if  on  no  other  ground,  from  the  impossibility  of  de- 
termining it ;  and  that,  instead  of  a  quantitative  formula,  we 
must  content  ourselves  with  an  approximately  accurate  de- 
scription. 

Let  us  consider  the  circumstances  under  which  the  selling 
price  comes  to  be  decided  in  any  wholesale  market.  We  will 
suppose  the  commodity  dealt  in  to  be  corn.  An  intending 
purchaser  enters  the  market,  having  previously  obtained  by 
such  means  as  were  open  to  him  information  respecting  the 
stock  of  corn  in  the  country,  or  likely  within  a  certain  period 
to  be  forth-coming  from  abroad ;  and  he  there  finds  certain 
quantities  offered  for  sale.  He  has  also  made  himself  acquaint- 
ed with  the  demand  for  ordinary  consumption,  so  far  as  it 
seems  likely  to  come  within  the  range  of  his  dealings.  On 
these  data  he  founds  an  opinion  as  to  what  the  price  of  corn 
ought  to  be.  The  opinion  thus  formed  is  not  absolutely  defin- 
itive. He  allows  it  to  be  modified  more  or  less  by  the  opinions 
which  he  finds  prevailing  in  the  market.  Under  the  influence 
of  all  these  considerations  he  comes  to  a  conclusion  as  to  the 
price,  which  —  while  anxious  to  procure  his  commodity  as 
cheaply  as  he  can — he  will,  rather  than  go  without,  be  pre- 
pared to  pay.  The  seller  of  corn  goes  through  a  similar  proc- 
ess, with  of  course  the  converse  object,  availing  himself  accord- 
ing to  his  intelligence  of  similar  means  of  information.  Sup- 
posing the  conclusion  he  comes  to  be  that  the  demand,  in  the 
sense  I  have  defined  it,  is  capable  of  taking  off  the  supply,  un- 
derstood also  in  the  sense  I  have  defined  it,  at  a  higher  price 
than  that  which  formed  the  conclusion  of  the  buyer's  calcula- 
tions, under  these  circumstances  there  would  be  no  transaction 
between  them;  and  if  their  opinions  represented  respectively 
the  opinions  of  all  the  buyers  and  all  the  sellers  in  the  market, 
no  transaction  would  in  that  market  take  place.  This  of 
course  is  what  rarely  or  never  happens.  Buyers  and  sellers  in 
the  same  town  or  district,  having  mostly  the  same  opportu- 


PROPER  MARKET  PRICE.  107 

uities  of  information,  will  not  in  general  differ  very  widely  in 
their  estimates  of  demand  and  supply;  and  where  they  differ 
but  slightly,  their  opinions  coming  in  so  limited  an  area  within 
the  sphere  of  each  other's  attraction,  are  apt  to  issue  in  agree- 
ment; the  exact  price  arrived  at  always  depending  in  some 
degree  on  the  firmness  and  shrewdness  of  individual  men. 
This  is  what  is  called  the  'higgling  of  the  market' — the  proc- 
ess on  which,  within  the  narrow  limits  of  variation  set  by  the 
deliberate  opinions  of  experts,  the  final  result  depends. 

The  influence  of  Demand  and  Supply  on  the  price-current 
in  a  given  market  is  thus  exercised  through  the  opinions  of 
the  dealers  in  that  market;  and  the  problem  to  which  the 
dealers  in  forming  their  opinions  address  themselves,  is  to  as- 
certain, having  regard  to  the  known  conditions  of  the  case, 
what  the  price  of  the  commodity  ought  to  be.  Let  us  now 
endeavor  to  determine,  with  as  much  precision  as  may  be,  the 
nature  of  the  problem  thus  presented  to  buyers  and  sellers  in 
a  wholesale  market.  I  grant  it  is  very  probable  that  most  of 
those  who  speak  freely  of  the  price  which  happens  to  obtain 
in  a  market  as  "  too  high  "  or  "  too  low,"  or  "  such  as  it  ought 
to  be,"  might  find  it  difficult,  if  challenged,  to  explain  the 
meaning  of  their  words:  nevertheless,  I  believe  that  these  ex- 
pressions do  at  least  point  to  a  meaning,  perhaps  a  latent  one, 
in  the  minds  of  those  who  use  them.  However  this  may  be, 
it  can  at  all  events  be  shown  that  there  is  in  every  market  a 
price  at  which  it  is  desirable  that  the  commodity,  whatever  it 
may  be,  should  sell  at  that  time  and  place — desirable  ultimate- 
ly in  the  interest  of  consumers,  but  in  a  certain  sense  desirable 
also  in  the  interest  of  dealers,  taking  buyers  and  sellers  to- 
gether, and  which  the  combined  operations  of  both,  so  far  as 
they  are  well  informed  respecting  the  conditions  of  supply  and 
demand,  really  tend  to  establish.  To  satisfy  ourselves  of  this, 
it  is  only  necessary  to  consider  that,  in  all  states  of  supply  and 
demand,  there  is  always  a  certain  price  beyond  which,  if  the 


108  MARKET  VALUE. 

markets  rise,  consumption  is  unnecessarily  checked,  and  the 
stocks  in  the  country  pass  off  more  slowly  than  is  needful. 
In  time  the  error  is  discovered,  and  a  competition  sets  in 
among  holders  of  the  commodity,  which  issues  in  a  fall  of 
price,  tending  to  stimulate  consumption  as  much  as  it  had  pre- 
viously been  unduly  checked.  On  the  other  hand,  supposing 
the  market  price  to  be  set  too  low,  stocks  become  exhausted 
too  soon,  and  the  undue  fall  will  need  to  be  compensated  by 
a  corresponding  advance  at  a  later  period.  Such  oscillations 
are  at  variance  with  the  interest  of  the  consumer;  and  the 
price,  therefore,  which  renders  them  unnecessary,  which  is  just 
sufficient,  and  no  more  than  sufficient,  to  carry  the  existing 
suj^ply  over,  with  such  a  surplus  as  circumstances  may  ren- 
der advisable,'^  to  meet  the  new  supplies  forth-coming,  may, 
I  think,  be  conveniently  designated  as  the  "proper  price"  of 
the  market.f     It  is  this  price  which,  it  seems  to  me,  the  deal- 


*  It  is  necessary  to  introduce  tliis  qualifying  clause,  since  it  is  not  always  for 
the  interest  of  the  consumer  that  consumption  should  proceed  at  such  a  pace  as 
to  exhaust  existing  stocks  exactly  as  the  new  supplies  are  coming  into  the  market. 
It  would  be  so  if  he  could  be  sure  that  the  new  supplies  would  sell  at  a  price  not 
higher  than  that  which  had  been  previously  current ;  but  in  the  case  of  raw  prod- 
ucts, and  more  especially  in  that  of  food  (for  reasons  which  will  presently  be 
pointed  out),  he  can  not  be  sure  of  this.  It  is,  therefore,  in  the  interest  of  con- 
sumers, that  is  to  say  of  the  community,  that,  in  the  uncertainty  as  to  what  may 
be  the  degree  of  abundance  or  scarcity  of  forthcoming  supplies,  a  certain  surplus 
should  be  kept  in  hand,  which  should  be  greater  or  less  according  to  the  prospects 
of  the  incoming  season,  with  a  view  to  supjjlement  the  possible  deficiencies  of  fu- 
ture supplies  ;  and  the  market  price  called  for  by  the  interest  of  consumers  would 
manifestly  be  that  which  would  be  surticient,  not  merely  to  carry  existing  stocks 
over  to  the  arrival  of  new  supplies,  hut  to  maintain  also  such  a  surplus.  (See 
Tooke's  "History  of  Prices,"  vol.  v.,  part  i.,  §  L'2,  where  the  reader  will  find  the 
subject  discussed  with  Mr.  Tooke's  usual  discrimination.) 

t  According  to  I\Ir.  Mill,  the  actual  market  price  is  tiie  price  >vliich  ecpializes 
supply  and  demand  in  a  given  market :  as  I  view  the  case,  the  "  proper  market 
price  "is  the  price  which  equalizes  supply  and  demand,  not  as*  existing  in  the 
j)articular  market,  but  in  the  larger  sense  wliicli  I  luivc  assigned  to  tlie  terms. 


FUNCTION  OF  SPECULATORS.  109 

ers  in  the  market  have  dimly  in  view  when  by  implication 
they  refer  to  a  standard  by  which  they  pronounce  the  actual 
price  to  be  "  too  high,"  or  "  too  low,"  or  "  what  it  ought  to  be,"' 
I  would  define  it  as  the  price  which  suffices  to  adjust  in  the 
most  advantageous  way  the  existing  supply  to  the  existing 
demand  pending  the  coming  forward  of  fresh  supplies  from 
the  sources  of  production. 

I  have  now,  I  hope,  made  it  plain  that  in  a  given  state  of 
demand  and  supply  there  is  a  certain  market  price  which  is 
identified  with  the  consumer's  interest;  and,  in  doing  so,  I 
have  observed  incidentally  that  the  price  satisfies  no  less  the 
true  interest  of  dealers.  It  remains  to  show  somewhat  more 
explicitly  how  it  comes  within  the  range  of  the  latter's  specu- 
lations, so  as  to  become  the  point  toward  which  the  operations 
converge;  since  it  is  only  in  proportion  as  this  is  the  case  that 
the  action  of  the  wholesale  market  has  any  tendency  to  evolve 
what  I  have  called  the  "proper  price."  The  buyer,  as  we 
know,  seeks  to  buy  as  cheaply  as  he  can ;  the  seller  to  sell  as 
dearly  as  he  can ;  but,  with  all  this,  it  is  the  interest  of  both 
to  know  the  price  beyond  which,  in  one  direction  the  buyer, 
in  the  other  the  seller,  can  not  pass  without  loss ;  and  this  is 
precisely  the  price  which  stands  identified  with  the  consumer's 
interest.  For,  as  we  have  seen,  if  the  price  rises  beyond  this 
point,  consumption  is  checked,  stocks  accumulate,  and  a  fii,ll 
of  price  is  necessitated,  to  the  loss  of  all  dealers  tvho  have  pur- 
chased above  the  depressed  rate ;  while,  on  the  other  hand,  if  the 
price  falls  below  it,  the  result  is  an  advance  at  a  future  time, 
to  the  loss  of  all  iclio  had  sold  ivhile  the  loiaer  j^rice  j^revailed.  It 
is  evident,  therefore,  that  dealers  are  interested  in  knowing 
the  "proper  price"  of  the  market,  and  further,  it  is  evident 
that  it  is  toward  this  point  that  the  combined  efforts  of  buyer 


To  this  price  the  actual  market  price  will,  according  to  my  view,  approximate,  in 
proportion  to  the  intelligence  and  knowledge  of  the  dealers. 


110  MARKET  VALUE. 

and  seller,  in  proportion  as  they  are  well  informed  respecting 
the  conditions  of  supply  and  demand,  really  converge.  Deal- 
ers thus,  while  simply  pursuing  their  own  interests,  are  uncon- 
sciously performing  for  the  community  a  service  of  first-rate 
importance  —  a  service  which  has  been  well  compared  by 
Archbishop  Whately  to  that  rendered  by  the  captain  of  a 
ship,  who,  taking  account  of  the  stock  of  provisions  at  his  dis- 
posal, and  the  length  of  his  intended  voyage,  adjusts  to  these 
conditions  the  rations  of  his  crew.  Such  is  the  tendency  of 
the  speculation  of  the  market,  and  the  end  is  attained  in  pro- 
portion to  the  intelligence  and  the  knowledge  of  those  who 
engage  in  the  pursuit;  and  such  are  the  grounds  on  which 
freedom  of  commercial  speculation  may  be  justified.  Of 
course  mistakes  are  often  made,  sometimes  very  serious  mis- 
takes; and  then  we  have  reaction,  oscillation,  and  perhaps 
commercial  crises.  But  under  all  circumstances  the  price  in 
the  market  is  determined  by  the  opinions  of  dealers  in  the 
market,  founded  upon  their  knowledge  of  demand  and  supply 
—  of  dealers  pursuing  their  interests  under  circumstances 
which,  in  proportion  to  the  intelligence  and  knowledge  at 
their  command,  favor  the  establishment  of  the  "  proper  mar- 
ket price." 

The  foregoing  is  the  nearest  approximation  I  can  make  to  a 
statement  of  the  law  of  market  price.  I  can  well  believe  how 
utterly  unsatisfactory  it  will  appear  to  some  economists  whose 
views  in  connection  with  their  science  are  much  more  ambi- 
tious than  my  own,  and  who  apparently  do  not  think  it. hope- 
less that  we  should  have,  ere  long,  an  exposition  of  economic 
principles  drawn  up  in  quantitative  formulas.  That  such  a 
consummation  would  be  desirable,  assuming  the  exposition  to 
be  sound,  I  should  be  the  last  to  deny,  though  I  own  I  do  not 
expect  to  witness  it;  and  I  can  not  but  think  that,  whatever 
may  be  the  case  in  other  instances,  at  least  in  that  of  market 
price  the  scientific  game  would  scarcely  be  worth  the  candle. 


U 


IMPORTANCE  OF  THE  THEORY.  Ill 

In  effect,  questions  respecting  market,  as  distinguished  from 
normal  price,  are  such  as  do  not  often  meet  us  in  the  field  of 
economic  or  social  speculation.  The  circumstances  which  gov- 
ern prices  in  the  latter  sense ;  which  regulate  the  relative  pro- 
portions in  which  the  various  classes  of  goods  usually  ex- 
change; which  cause  the  prices  of  some  of  the  most  important 
articles  of  consumption  to  be  2:)ermanerdly  higher  in  some  coun- 
tries than  in  others  —  these  are  topics  of  very  great  moment, 
which  have  the  closest  connection  with  some  most  important 
questions  of  national  and  class  well-being.  But  the  most  accu- 
^rate  determination  of  the  conditions  which  issue  in  the  price- 
current  in  a  particular  market  on  a  particular  day,  and  which 
rule  the  fluctuations  of  the  market  fi'om  day  to  day — however 
important  such  knowledge  may  be  to  the  practical  merchant 
and  speculator — can  furnish,  so  far  as  I  can  see,  but  slight  help 
toward  the  solution  of  any  question  of  large  or  permanent  in- 
terest.*    I  do  not,  therefore,  affect  to  think  that  the  incom- 


*  The  announcements  of  the  jaending  famine  in  Bengal  warn  nie  that  it  is  pos- 
sible to  disparage  too  much  the  importance  of  the  doctrine  of  market  prices.  In 
the  comments  on  this  subject  by  the  press  of  this  country,  much  anxiety  has  been 
evinced  in  some  quarters  lest  merchants,  by  storing  supplies,  may  force  up  the 
price  of  food  to  a  famine  rate  in  certain  isolated  districts.  A  slight  acquaintance 
with  the  doctrine  of  market  price  might  serve  to  re-assure  such  writers.  Provided 
that  the  merchants  in  question  have  not  the  power  to  exclude  supplies  from  the 
isolated  districts,  any  advance  in  price  beyond  what  the  interest  of  the  consumers 
in  the  district  requires  would,  as  I  have  shown  in  the  foregoing  pages,  be  at  the 
cost  of  tlie  speculators  whose  operations  produced  it.  What  is  desirable  is,  that 
the  price  should  be  raised  as  soon  as  possible  to  a  point  sufficient  at  once  to  com- 
pel the  utmost  economy  in  consumption,  and  to  attract  supplies  from  the  largest 
possible  area.  As  to  the  action  of  the  Government  for  the  relief  of  the  famine 
being  a  "setting  aside  of  the  laws  of  Political  Economy,"  it  would  be  just  as  rea- 
sonable to  talk  of  precautions  against  a  hurricane,  or  against  a  high  tide,  being  a 
setting  aside  of  the  laws  of  physical  nature.  Will  people  never  understand  that 
a  "law"  of  Political  Economy  is  a  "law'  in  no  other  sense  than  the  law  of 
gravitation,  and  that  it  is  not  an  act  of  Parliament,  or  a  rule  prescribed  by  any 
one,  which  governors-general  can  "  set  aside  ?"' 


112  MARKET  VALUE. 

pleteness  and  imperfection  which  are  apparent  enough  in  this 
portion  of  economic  theory  are  very  much  to  be  deplored. 
So  far  as  the  doctrine  of  market  price  is  concerned,  it  seems 
to  me  to  suffice  for  the  purposes  of  Social  Philosophy,  if  we 
are  enabled  to  set  forth  in  a  general  way  the  connection  be- 
tween the  fluctuations  of  the  market  and  the  more  fundament- 
al conditions  on  which  production  and  exchange  depend.  And 
so  much,  I  venture  to  think,  the  theory,  as  I  have  stated  it, 
taken  in  connection  with  the  known  facts  of  particular  cases, 
will  sufficiently  enable  us  to  perform. 

§  5.  The  foregoing  discussion  has  been  confined  exclusive- 
ly to  the  question  of  prices  in  wholesale  markets :  it  remains 
to  consider  the  case  of  retail  prices ;  but  these  need  not  detain 
us  long.  The  chief  circumstances  in  which  the  determination 
of  price  in  retail  dealings  differs  from  its  determination  in 
wholesale  markets  appear  to  be  these  two :  first,  competition 
in  retail  markets  is  conducted  under  conditions  which  may  be 
described  as  of  greater  friction  than  those  which  exist  in  whole- 
sale trade.  In  the  wholesale  market,  the  sellers  and  purchas- 
ers meet  together  in  the  same  place,  affording  thus  to  each 
other  reciprocally  the  opportunity  of  comparing  directly  and 
at  once  the  terms  on  which  they  are  severally  disposed  to 
trade.  In  retail  dealing  it  is  otherwise.  In  each  place  of  sale 
there  is  but  one  seller;  and  though  it  is  possible  to  compare 
his  terms  with  the  prices  demanded  elsewhere  by  others,  this 
can  not  always  be  done  on  the  moment,  and  may  involve 
much  inconvenience  and  delay.  A  purchaser  frequently  finds 
it,  on  the  whole,  better  to  take  the  word  of  the  seller  for  the 
fairness  of  the  price  demanded  than  to  verify  his  statements 
by  going  on  the  occasion  of  every  purchase  to  another  shop. 
It  is  probable,  indeed,  that  if  the  charge  be  excessive,  the  pur- 
chaser will  in  time  come  to  discover  this,  and  may  then  trans- 
fer his  custom  to  a  cheaper  market.     This  shows  that  compe- 


IN  RETAIL  DEALING.  113 

tition  is  not  inoperative  in  retail  trade,  but  it  shows  also  the 
sort  of  friction  under  which  it  works,  and  helps  to  explain, 
what  has  often  been  remarked  upon,  and  what,  as  a  matter  of 
fact,  it  is  practically  important  people  should  bear  in  mind, 
the  different  prices  at  which  the  same  commodity  is  frequent- 
ly found  to  sell  within  a  very  limited  range  of  retail  dealing 
— almost  in  what  we  may  call  the  same  market.  This  is  one 
circumstance  that  distinguishes  retail  from  wholesale  trading. 
The  other  lies  in  the  advantage  which  his  superior  knowledge 
gives  the  buyer  over  the  seller  in  the  transaction  taking  place 
between  them — a  superiority  which  has  no  counterpart  in  the 
relations  of  wholesale  dealers.  In  the  wholesale  market,  buy- 
er and  seller  are  upon  a  strictly  equal  footing  as  regards 
knowledge  of  all  the  circumstances  calculated  to  affect  the 
price  of  the  commodity  dealt  in.  It  is  the  business  of  each  to 
inform  himself  as  to  the  state  of  supply  and  demand,  and  if 
he  fails  to  do  so,  he  has  no  just  ground  of  complaint  if  the 
other  party  to  the  transaction  gains  an  advantage  in  the  bar- 
gain. The  advantage  so  obtained  is  the  natural  and  proper 
reward  of  the  greater  skill  exhibited — skill  which,  as  I  have 
shown,  it  is  for  the  interest  of  the  community  that  each  should 
cultivate  to  the  highest  degree.  The  circumstances  of  retail 
dealing  are  here  again  in  contrast  with  those  of  the  wholesale 
trade.  The  transactions  do  not  take  place  between  dealers 
possessing,  or  with  the  opportunities  of  acquiring,  equal  knowl- 
edge respecting  the  commodities  dealt  in,  but  between  experts 
on  one  side,  and  on  the  other  persons  in  most  cases  wholl}' 
ignorant  of  the  circumstances  at  the  time  affecting  the  market. 
Between  persons  so  qualified  the  game  of  exchange,  if  the  rules 
be  rigorously  enforced,  is  not  a  fair  one;  and  it  has  conse- 
quently been  recognized,  universally  in  England,  and  very  ex- 
tensively among  the  better  class  of  retail  dealers  in  continental 
countries,  as  a  principle  of  commercial  morality,  that  the  dealer 
should  not  demand  from  his  customer  a  higher  price  for  his 


114  MARKET  VALUE. 

commodity  than  the  lowest  he  is  prepared  to  take.  Eetail 
buying  and  selling  is  thus  made  to  rest  upon  a  moral  rather 
than  upon  an  economic  basis,  and,  there  can  be  no  doubt, 
for  the  advantage  of  all  parties  concerned.  The  practice, 
however,  of  unprofitable  higgling,  as  all  travelers  know,  is 
still  rife  in  most  parts  of  the  Continent,  and,  in  general,  every- 
where among  the  class  of  smaller  dealers,  involving  a  great 
waste  of  time,  by  which  perhaps  the  dealer  in  the  end  loses  as 
much  as  he  now  and  then  gains  by  taking  advantage  of  his 
superiority  over  his  customer  in  knowledge  of  the  game. 

These,  it  seems  to  me,  are  the  principal  circumstances  which 
distinguish  the  determination  of  price  in  the  retail  trade  from 
its  determination  in  wholesale  markets;  and  they  sufl&ce  to  ac- 
count for,  what  has  often  been  noticed  and  is  indeed  a  very 
patent  fact,  the  much  greater  variety  to  be  found  in  the  prices' 
of  the  same  and  similar  commodities  in  the  former  than  in  the 
latter  department  of  business.  I  do  not  think  ihivi  fluctuations 
of  price  (to  be  distinguished  from  variety)  are  greater  in  the  re- 
tail than  in  the  wholesale  trade.  Perhaps,  on  the  whole,  they 
may  in  this  country  be  somewhat  less;  as  the  practice  of  hav- 
ing a  fixed  price  for  all  goods  would  make  the  prudent  retail 
dealer  unwilling  to  change  his  price,  and  so  disappoint  and 
harass  his  customer,  with  every  slight  fluctuation  of  the  whole- 
sale market.  But  though  fluctuations  of  price  may  be  some- 
what less,  varieties  of  price  are  undoubtedly  very  much  great- 
er. Not  only  in  different  localities, but  often  in  different  shops 
in  the  same  locality,  it  is  quite  usual  to  find  the  same  articles, 
and  of  the  same  quality,  selling  at  widely  different  prices  at 
the  same  time;  and  this  quite  in  excess  of  what  the  special 
circumstances  of  particular  localities  or  situations  might  ac- 
count for.  This  is  not  a  satisfactory  state  of  things ;  but 
though  perhaps  in  some  degree  inevitable,  because  due  to  what 
we  may  regard  as  essential  incidents  of  retail  trading,  the  evil 
is,  at  least  in  this  country,  greatly  aggravated  by  a  cause  which 
is  quite  removable,  and  which,  we  may  hope,  is  in  process  of 


CO-OPEEATIVE  COMPETITION.  115 

being  removed.  This  is  the  excessive  amount  of  capital  which, 
from  one  cause  or  another,  has  found  its  way  into  the  business 
of  mere  distribution.  The  inevitable  consequence  is  that  the 
capital  thus  in  excess,  taking  it  as  an  aggregate,  turns  slowly — 
more  slowly  than  it  need  turn  consistently  with  the  due  dis- 
charge of  its  functions;  and  that  those  who  have  embarked  in 
retail  business  are  compelled,  in  order  to  obtain  average  profits 
on  their  capital,  to  charge  higher  prices  for  their  goods  than 
would  be  necessary  if  the  total  amount  of  capital  in  the  trade 
were  less.  That  such  a  state  of  things  should  exist  and  con- 
tinue is  doubtless  due  to  that  excessive  friction  in  the  action 
of  competition  in  retail  dealing  of  which  I  have  spoken.  The 
prices  charged  in  different  retail  establishments  are  but  rare- 
ly compared,  and  continue  consequently  to  differ  widely  from 
each  other,  as  they  no  doubt  differ  still  more  widely  from  what 
they  might  be  in  a  more  healthy  condition  of  the  trade.  The 
source  of  the  evil  is,  thus,  the  sluggish  action  of  competition ; 
and  the  remedy  must  be  sought  in  the  quickening  of  this  ac- 
tion. This  is  what  the  co-operative  retail  establishments  are, 
in  effect,  doing.  By  adopting  a  lower  scale  of  prices,  and  tak- 
ing good  means  to  advertise  their  terms,  they  draw  a  larger 
amount  of  custom  to  their  shops  in  proportion  to  the  capital 
embarked  than  other  competing  establishments.  The  result  is 
that,  turning  their  capital  more  rapidly,  they  succeed  in  realiz- 
ing as  high  profits  as  their  rivals,  while  charging  lower  prices. 
The  opposition  given  to  this  movement  by  the  ordinary  retail 
establishments,  however  little  ground  for  it  there  may  be  in 
reason  and  justice,  is  perfectly  natural,  inasmuch  as  the  drift 
of  it  unquestionably  is  toward  the  extrusion  of  some  of  them 
from  the  trade.  Nothing  less  than  this,  it  is  clear,  will  satisfy 
the  exigencies  of  the  case.  What  we  have  to  contemplate  as 
the  proper  goal  of  co-operative  competition  is  a  general  foil  of 
retail  prices;  but  to  reconcile  this  with  a  realization  by  the 
whole  trade  of  an  average  remuneration  on  the  capital  embark- 
ed in  it,  it  would  be  necessary  that  this  capital  should  be  turn- 


116  MARKET  VALUE. 

ed  over  in  a  given  time  as  often  as  the  capital  of  the  co-opera- 
tors. In  order  to  this,  however,  the  entire  capital  employed 
in  the  trade  would  need  to  be  brought  into  the  same  propor- 
tion with  the  business  to  be  done  as  the  co-operators'  capital 
bears  to  their  business — that  is  to  say,  the  total  capital  now 
employed  in  the  business  of  distribution  would  need  to  be 
largely  curtailed.  The  necessity  of  this  is  not  always  per- 
ceived ;  and  people  argue  that,  as  the  co-operative  stores  have 
succeeded  in  turning  over  their  capital  rapidly  by  the  expe- 
dient of  a  reduction  in  price,  so  the  same  end  may  be  attained 
by  the  retail  trade  in  general  through  the  adoption  of  the  same 
means.  But  this  is  just  one  of  those  cases,  so  common  in  Po- 
litical Economy,  in  which  what  is  true  in  particular  instances 
ceases  to  be  true  when  the  instances  become  the  rule.  How 
is  it  that  co-operators  have  accomplished  the  more  rapid  turn- 
ing of  their  capital?  Simply  by  drawing  off  custom  through 
the  attraction  of  low  prices  from  other  shops.  Supposing  these 
latter  now  to  adopt  the  same  policy,  we  may  assume  that  their 
custom  would  flow  back  to  them.  The  capital  of  the  whole 
would  then  turn  at  the  same  rate  as  formerly  ;  but  it  was  just 
this  slow  rate  of  turning  that  necessitated  exorbitant  prices  in 
the  retail  trade  ;  and  if  prices  are  to  range  lower,  other  things 
being  the  same,  profits .  must  decline  below  their  former  and 
average  level.  Other  things,  indeed,  would  not,  in  the  case 
supposed,  remain  for  any  long  time  the  same;  for  a  fall  in  the 
rate  of  profit  would  have  the  effect  of  driving  capital  from  the 
trade,  or  at  all  events  of  preventing  the  capital  now  in  the 
trade  from  being  recruited  by  the  accessions  that  otherwise 
would  flow  to  it.  The  definitive  result  toward  which  such  a 
process  would  tend  is  manifestly  a  reduction  of  the  existing 
capital  of  retail  dealing  to  an  amount  which  would  be  no  more 
than  adequate  to  perform  the  services  required  of  it.  This  point 
reached,  while  the  public  would  enjoy  the  advantage  of  lower- 
ed prices,  retail  dealers  would,  as  a  body,  derive  from  their 
investments  the  rate  of  remuneration  current  in  the  country. 


CHAPTER  V. 

Oy  sons  DERIVATIVE  LAWS  OF  VALUE. 

§  1.  I  PROPOSE  to  call  attention  in  this  chapter  to  some  ex- 
amples of  value  which  I  think  may  not  improperly  be  called 
"derivative  laws"  of  that  phenomenon.  I  refer  to  those 
changes  in  the  values  of  different  kinds  of  commodities  which 
occur  when  the  general  laws  of  value,  such  as  we  have  found 
them  to  be,  come  into  operation  under  the  actual  circumstances 
of  progressive  societies. 

When  a  colony  establishes  itself  in  a  new  country,  the 
course  of  its  industrial  development  naturally  follows  the 
character  of  the  opportunities  offered  to  industrial  enterprise 
by  the  environment.  These  will  of  course  vary  a  good  deal, 
according  to  the  part  of  the  world  in  which  the  new  society 
happens  to  be  placed;  but,  speaking  broadly,  they  will  be 
such  as  to  draw  the  bulk  of  the  industrial  activity  of  the  new 
people  into  some  one  or  more  of  those  branches  of  industry 
which  have  been  conveniently  designated  "extractive."  Ag- 
riculture, pastoral  and  mining  pursuits,  and  the  cutting  of 
lumber,  are  among  the  principal  of  such  industries;  and  they, 
together  with  the  rude  handicrafts  immediately  dependent  on 
them,  are  what  we  find,  in  fact,  to  be  the  main  occupations  of 
all  newly-settled  communities.  Now  it  is  mainly,  if  not  ex- 
clusively, to  this  class  of  industrial  pursuits  that  that  law  of 
Political  Economy,  or  more  properly  of  physical  nature,  ap- 
plies, which  Mr,  Mill  has  rightly  characterized  as  the  most  im- 
portant proposition  in  economic  science — the  law,  as  he  phrased 
it,  of  "diminishing  productiveness."     Most  of  my  readers  will 


118  DERIVATIVE  LAWS  OF   VALUE. 

be  familiar  with  the  principle  in  question,  but  it  may  be  well 
to  recall  it  here.  It  may  be  thus  briefly  stated :  In  any 
given  state  of  the  arts  of  production,  the  returns  to  human 
industry  employed  upon  natural  agents  will,  up  to  a  certain 
point,  be  the  maximum  which  those  natural  agents,  cultivated 
with  the  degree  of  skill  brought  to  bear  upon  them,  are  capa- 
ble of  yielding;  but  after  this  point  has  been  passed,  though 
an  increased  application  of  labor  and  capital  will  obtain  an  in- 
creased return,  it  will  not  obtain  a  proportionally  increased  re- 
turn :  on  the  contrary,  every  further  increase  of  outlay — al- 
ways assuming  that  the  skill  employed  in  applying  it  contin- 
ues the  same  as  before — will  be  attended  with  a  return  con- 
■stantly  diminishing.  To  this  principle,  in  conjunction  with 
the  varying  quality  of  different  soils,  is  due,  as  every  econo- 
mist knows,  the  phenomenon  of  agricultural  rent;  but  this 
has  been  so  fully  illustrated  in  works  now  in  every  one's 
hands,  in  its  application  alike  to  agriculture  and  to  other 
branches  of  extractive  industry,  that  I  may  content  myself 
with  merely  referring  to  it  here.  What  I  am  concerned  now 
to  show  is  the  manner  in  which,  with  the  progress  of  society, 
the  law  in  question  affects  the  course  of  normal  values  in  all 
commodities  coming  under  its  influence. 

The  case  which  I  am  considering,  the  reader  will  remember, 
is  that  of  newly-settled  communities,  among  whom  the  condi- 
tions of  social  and  industrial  life  are,  on  the  whole,  much  more 
equal  and  uniform  than  in  old  countries  like  this.  It  results 
that  industrial  competition  among  the  several  social  classes 
will  at  this  stage  of  social  growth — unless  where  restrained  by 
laws  enacted  directly  for  this  purpose — be  more  general  and 
effective  than  in  this  part  of  the  world  we  are  accustomed  to 
find  it;  and,  as  a  further  consequence  from  the  same  state  of 
things,  it  must  follow  that  the  principle  of  cost  of  production 
as  governing  value  is  more  extensively  operative  in  such  so- 
cieties than  with  us.     For  the  purposes  of  our  present  investi- 


INCREASE  OF  COST  OF  COMMODITIES.  119 

gation  it  will  be  convenient  to  assume,  and  the  assumption 
will  be  sufficiently  near  the  truth,  that,  in  the  case  of  their 
domestic  exchanges,  the  principle  in  question  is  operative  uni- 
versally. This  being  so,  it  is  evident  that  an  inquiry  into  the 
course  of  norrnul  values  in  such  communities  resolves  itself 
into  an  inquiry  into  the  changes  which  occur  in  the  costs  of 
producing  the  several  classes  of  commodities  which  are  there 
the  subject  of  exchange;  these  commodities  consisting  mainly, 
as  we  have  seen,  at  least  during  the  earlier  stages  of  their 
growth,  of  the  products  of  extractive  industry. 

From  the  law  of  diminishing  productiveness  just  referred 
to,  taken  in  connection  with  the  circumstance  that  the  settlers 
in  a  new  country  naturally  have  recourse,  in  the  first  instance, 
to  those  natural  agents  which,  from  their  superior  fertility  or 
more  convenient  situation,  promise  the  largest  returns  to  in- 
dustry, it  follows  that,  as  population  increases  and  larger  de- 
mands are  made  upon  the  resources  of  the  country,  the  cost 
of  producing  commodities  tends  constantly  to  rise.  This  tend- 
ency may  indeed  be  counteracted  by  the  progress  of  mechan- 
ical and  chemical  invention,  and  the  improved  industrial  proc- 
esses which  usually  result.  But,  in  point  of  fact,  it  has  never 
been  found  in  the  history  of  any  country,  that  such  inventions 
have  kept  pace  with  the  declining  rate  of  return  yielded  by 
natural  agents,  as  their  capabilities  have  been  subjected  to  the 
increasing  demands  of  a  growing  community ;  and  it  is  there- 
fore safe  to  assume  that  the  tendency  to  an  increase  of  cost 
in  the  class  of  commodities  under  consideration  would  in  any 
actual  case  be  realized.  The  degree,  however,  in  which  this 
result  occurred  would  be  very  different  in  different  kinds  of 
"extractive"  products,  and  this  would  lead  to  corresponding 
diffei'ences  in  the  course  of  their  normal  values. 

§  2.  The  class  of  commodities  in  the  production  of  which 
the  facilities  possessed  by  new  communities,  as  compared  with 


120  DElilVATIVE  LAWS   OF   VALUE. 

old,  attain  their  greatest  height,  are  those  of  which  timber  and 
meat  may  be  taken  as  the  type,  and  comprises  such  articles  as 
wool,  game,  furs,  hides,  horns,  pitch,  resin,  etc.  The  character- 
istic of  all  such  products  is,  that  they  admit  of  being  raised 
with  little  previous  outlay,  and,  therefore,  with  comparatively 
little  capital,  and  in  genei'al  require  for  their  production  a 
large  extent  of  ground.  Now  capital  is  the  industrial  agent 
which  new  countries  are  least  able  to  command,  while  they 
commonly  possess  land  in  unlimited  abundance.  There  can, 
therefore,  be  no  difficulty  in  perceiving  that,  for  the  produc- 
tion of  the  class  of  commodities  mentioned  above,  newly-set- 
tled communities  are  especially  adapted,  and  that,  consequent- 
ly, the  value  of  all  such  commodities  will  be  in  them  excep- 
tionally low. 

The  circumstance  which  most  powerfully  affects  the  course 
of  values  in  the  products  of  extractive  industry,  and  in  the 
commodities  just  referred  to  among  the  rest,  is  the  degree  in 
which  they  admit  of  being  transported  from  place  to  place, 
that  is  to  say,  their  portableness,  depending,  as  it  does,  partly 
on  their  durability  and  partly  on  their  bulk.  Taking  timber 
and  butcher's  meat  as  exemplifying  respectively  a  high  and  a 
low  degree  of  portableness,  we  find  that  while  the  values  of 
both  range  in  new  countries,  where  the  circumstances  are  fa- 
vorable for  their  production,  at  a  very  low  point  compared 
with  their  values  in  old,  the  difference  is,  even  at  the  outset, 
considerably  greater  in  the  case  of  meat  than  in  that  of  tim- 
ber;  and  further,  that,  while  the  value  of  the  latter  rises  in 
general  slowly,  and  never  attains  a  very  great  elevation,  reck- 
oning from  its  height  at  starting,  that  of  the  former  rises  more 
rapidly,  and  continues  to  rise  with  the  growth  of  the  commu- 
nity, the  highest  point  which  it  is  capable  of  attaining  being, 
in  the  present  state  of  our  knowledge  at  least,  quite  indeter- 
minable. The  explanation  of  this  contrast  lies  entirely  in  the 
circumstance  to  which  I  have  adverted — the  different  portable- 


MEAT  AXD  TIMBER.  121 

ness  of  the  two  commodities.  Timber,  notwithstanding  its 
bulk,  being  a  very  portable  commodity,  easily  finds  its  way 
from  the  forests  of  new  to  the  markets  of  old  countries.  As 
soon,  therefore,  as  a  new  community  is  brought  into  commer- 
cial connection  with  the  more  advanced  parts  of  the  world, 
if  timber  be  there  an  article  of  production,  its  price  will  at 
once  rise  to  a  level  lower  than  that  prevailing  in  old  countries 
only  by  the  cost  of  transport.  This,  no  doubt,  in  so  bulky  a 
commodity,  will  represent  a  considerable  proportion  of  the 
whole  value ;  but  the  important  point  to  attend  to  is  that  the 
price  thus  determined  will  in  future  bear  a  constant  relation  to 
the  price  in  old  countries;*  the  difference  between  the  two  be- 
ing always  such  as  the  cost  of  transport  will  render  it.  Meat, 
on  the  other  hand,  unsuited  as  it  is,  owing  to  its  perishable  na- 
ture, for  a  distant  traffic,  is  confined  for  a  market,  if  not  to  the 
immediate  locality  where  it  is  produced,  at  least  to  the  border- 
ing countries ;  and  being  raised  in  new  countries  at  very  low 
cost,  its  value  during  the  early  stages  of  their  growth  is  neces- 
sarily low.     But  as  population  advances,  and  agriculture  en- 

*  It  is  not  to  be  supposed  from  this  that  the  price,  ns  compared  with  that  of  oth- 
er commodities  raised  within  the  same  district,  will  cease  to  be  determined  by  its 
cost  of  production.  If,  for  example,  the  opening  afforded  by  foreign  markets  had 
the  effect  of  raising  the  price  of  timber  above  the  point  prescribed  by  its  cost  of 
production  as  compared,  let  us  say,  with  agricultural  products,  tlie  liigher  profits 
of  the  himber  trade,  in  tiie  circumstances  supposed,  would  have  the  elVect  of  draw- 
ing off  capital  and  labor  from  agriculture  to  lumber  cutting.  The  curtailment  of 
the  area  of  cultivation  in  agriculture  would  be  attended  with  a  reduction  in  the 
cost  of  its  products,  involving,  cateris  paribus,  an  advance  in  agricultural  profits ; 
while,  on  the  other  hand,  the  extension  of  the  field  of  production  in  lumber  cut- 
ting, necessitating  a  resort  to  more  distant  forests,  would  be  followed  by  the  oppo- 
site effect;  and  this  process  would  manifestly  go  on  till  the  prices  of  timber  and 
agricultural  products  were  brought  into  relation  with  their  respective  costs.  The 
normal  jtrice  of  timber,  therefore,  would  still  be  such  as  its  cost  of  production  pre- 
scribed ;  but  this  cost  of  production,  as  happens  with  the  products  of  all  extract- 
ive industry,  would  tend  to  rise  with  the  increased  demands  made  upon  the  nat- 
ural agent. 


122  DEBIVATIVE  LAWS   OF   VALUE. 

croacbes  on  the  natural  pasture  lands  originally  available  for 
the  rearing  of  cattle,  still  more  as  it  becomes  necessary  to  cul- 
tivate land  for  the  purpose  of  pasture,  the  cost  of  meat  con- 
stantly rises.  It  was  the  opinion  of  Adam  Smith,  that,  so 
soon  as  this  last  stage  was  reached,  the  price  of  all  "  extractive" 
products  of  whatever  kind  attained  its  maximum  height,  and 
that  no  farther  advance  (unless  so  far  as  this  might  arise  from 
a  fall  in  the  value  of  money)  was  henceforth  to  be  expected. 
The  only  reason  he  assigns  for  this  opinion  is,  that  if  the  price 
rose  higher,  "  more  land  would  soon  be  turned  to  that  pur- 
pose."* I  need  scarcely  point  out  the  entire  inadequacy  of 
this  reason.  More  land  no  doubt  would  be  turned  to  the  pro- 
duction of  the  article,  whatever  it  might  happen  to  be,  the  ad- 
vancing price  of  which  made  it  profitable  to  cultivate  land  for 
this  purpose ;  but  it  does  not  follow,  that,  as  the  extension  of 
cultivation  went  on,  the  cost  of  production,  and  with  it  the 
price  of  the  article,  would  not  rise.  On  the  contrary,  this  is 
what  we  know  does  happen,  and  has  happened  in  a  signal 
manner  in  the  case  of  meat.  The  same  cause  which  depresses 
the  price  of  meat  in  the  earlier  stages  of  a  nation's  career — its 
perishable  nature  and  consequent  unfitness  for  transport — op- 
erates to  raise  the  price  in  the  later  stages  by  practically  con- 
fining each  country  to  what  it  can  itself  produce.  It  is  thus 
led  with  the  increasing  demands  of  a  growing  population  to 
extend  the  supply  at  a  constantly  increasing  cost.  The  price 
of  meat,  accordingly,  has,  since  the  time  of  Adam  Smith, 
though  with  numerous  fluctuations,  on  the  whole  steadily  ad- 
vanced ;  and,  notwithstanding  the  unexampled  height  which 
it  has  now  attained  in  this  country,  when  one  considers  the 
peculiar  place  which  meat  holds  in  the  dietary  of  the  masses 
of  a  people — that  it  is  the  article  on  which,  in  the  event  of  any 
improvement  in   their  condition,  increased  expenditure  most 


"Wealth  of  Nations,"  pj).  101-4,  5. 


GRAIN.  123 

certainly  finds  vent — one  can  not  doubt  but  that  its  progress 
must  still  be  upward,*  even  irrespective  of  the  depreciation  of 
money  now  going  on,  which  can  not  fail  to  accelerate  the 
movement. 

§  3.  Next  to  those  products  of  extractive  industry  of  which 
meat  and  timber  are  the  type,  and  which  exhibit  in  the  high- 
est degree  the  special  productive  aptitudes  of  new  countries, 
the  commodity  which  offers  greatest  scope  for  their  special  re- 
sources is  grain.  The  course  of  normal  price  in  this  article 
differs  in  a  very  striking  way  from  that  of  those  which  we 
have  just  considered.  Like  theirs,  indeed,  the  course  is  up- 
ward ;  and  like  that  of  timber — corn  being  also  an  extremely 
portable  commodity — the  price  is  at  an  early  stage  brought 
into  relation  with  the  quotations  ruling  in  the  great  markets 
of  the  world ;  with  this  difference,  however,  that  the  cost  of 
carriage  being  for  corn,  in  proportion  to  its  value,  much  less 
than  for  timber,  its  price  in  the  new  community  approximates 
more  closely  to  its  price  in  old  countries  than  does  that  of  the 
latter  commodity.  But  the  noteworthy  circumstance  in  the 
course  of  price  in  corn — so  far  at  least  as  corn  forms  the  staple 
food  of  a  people — is  that  advancing,  with  of  course  much  fluc- 
tuation, iu  the  early  period  of  growth,  it  at  length  in  the  prog- 
ress of  industrial  development  reaches  a  point  beyond  which 
(unless  so  far  as  it  is  affected  by  changes  in  the  value  of  mon- 
ey) it  manifests  no  tendency,  at  least  no  permanent  tendency, 
to  advance  farther.  I  am  not  aware  that  this  peculiar  incident 
in  the  price  of  corn  has  been  pointed  out  before,  and  it  is 

*  In  connection  with  this  subject  one  perceives  the  immense  national  impor- 
tance of  inventions  bearing  on  the  preservation  of  meat,  and  of  the  development 
of  a  trade  in  preserved  meats,  between  new  countries  like  Australia  and  old  ones 
like  this.  It  is  satisfactory  to  find  that  some  progress  has  been  made  in  this  di- 
rection ;  but  apparently  the  art  will  need  great  improvement  before  the  preserved 
meats  of  Australia  can  enter  largely  into  our  general  consumption. 


124  DEEIVATIVE  LAWS   OF   VALUE. 

possible  it  may*  be  disputed  as  a  matter  of  fact :  nevertheless, 
I  make  the  assertion  with  some  confidence,  inasmuch  as  I  find 
grounds  for  it  in  the  economic  conditions  under  which  corn  is 
produced,  taken  in  connection  with  the  purposes  to  which  it 
is  applied.  Corn  is  raised  at  various  costs,  according  to  the 
character  of  the  land  and  the  degree  of  skill  employed  in  its 
cultivation ;  but,  as  every  economist  knows,  the  cost  which 
governs  the  price  of  corn  is  the  cost  of  the  most  costly  portion 
brought  to  market.  In  the  early  stages  of  a  nation's  career, 
as  with  the  increase  of  population  resort  is  had  to  more  distant 
and  inferior  soils,  the  cost  of  this  most  costly  portion  steadily 
rises,  and  along  with  it  the  normal  price  of  corn.  But  an  in- 
crease in  the  cost  of  corn  means  a  diminished  return  on  the  in- 
dustry employed  in  producing  it;  and  this  diminished  return 
— corn  being  the  principal  article  of  the  laborer's  consumption 
—  involves  for  him  diminished  means  of  support.  It  needs 
but  slight  reflection  to  perceive  that  this  circumstance  contains 
within  it  a  necessary  limit  to  the  increasing  cost  of  producing 
corn,  and,  consequently,  to  the  advance  in  its  price.  In  the 
case  of  what  we  may  call  secondary  articles  of  consumption, 
such  as  meat  and  dairy  produce,  the  same  consequence  does 
not  arise,  because  an  advance  in  the  price  of  such  commodities, 
entering  as  they  do  but  sparingly  into  his  consumption,  falls, 
by  comparison  at  least,  lightly  on  the  laborer.     These  articles 

*  Unless  Adam  Smith's  view  as  to  the  steadiness  of  the  price  of  corn,  compar- 
ing century  with  century,  in  contrast  with  the  market  fluctuations  from  year  to 
year,  be  considered  as  tantamount  to  it.  Mr.  Mill,  indeed,  has  controverted 
Adam  Smith's  doctrine,  wliich,  he  says,  "  we  now  know  to  be  an  error.  Corn 
tends  to  rise  in  cost  of  production  with  every  increase  of  population,  and  to  fall 
with  every  improvement  in  agriculture,  either  in  the  country  itself,  or  in  any  for- 
eign country  from  whicli  it  draws  a  portion  of  its  supplies"  ("Principles  of  Polit- 
ical Economy,"  vol.  ii.,  p.  104).  I  venture  here  to  take  side  with  Adam  Smith  : 
for  though  the  tendencies  pointed  out  by  Mr.  Mill  do  exist  and  operate,  their 
operation,  as  I  think  I  have  shown  in  the  text,  is  not  inconsistent  with  the  sub- 
stantial truth  of  Adam  Smith's  assertion. 


GRAIN.  125 

may  continue  to  rise  indefinitely,  and  yet  population  may 
continue  to  live  and  grow.  But  an  advance  in  the  price  of 
the  staple  food,  after  it  attains  a  certain  elevation,  inevita- 
bly reacts  on  population,  and,  checking  the  demand,  arrests 
the  extension  of  cultivation,  and  by  consequence,  the  ad- 
vance of  normal  price.  The  progress  of  industrial  inven- 
tion comes  no  doubt  in  time  to  affect  the  course  of  agri- 
culture, and  then  ensues  a  succession  of  cyclical  movements 
which  may  be  thus  described.  The  cost  of  producing 
corn  on  the  worst  soils  cultivated  is  cheapened :  the  normal 
price  of  corn  for  a  time  falls :  the  condition  of  the  laborer 
improves,  and  with  the  improvement  in  his  condition  he  mar- 
ries earlier,  and  brings  up  a  larger  family :  population  increases, 
and,  the  demand  for  food  increasing  with  it,  cultivation  is  ex- 
tended to  soils  which,  previous  to  the  introduction  of  the 
better  agricultural  processes,  could  not  have  been  profitably 
cultivated;  at  length  the  "margin  of  cultivation"  attains  a 
range  where  the  inferior  quality  of  the  natural  agents  brought 
into  requisition  just  neutralizes  the  gain  derived  from  the  ad- 
vance in  agricultural  skill.  At  this  point  the  cost  of  produc- 
ing the  most  costly  portion  of  the  nation's  food  is  just  where  it 
was  before  improved  processes  had  been  introduced  into  agri- 
culture ;  and  the  normal  price  of  food  attains  its  former  eleva- 
tion. The  laborer's  condition,  unless  so  far  as  the  standard  of 
comfort  has  been  raised  in  the  interval,  returns  to  its  former 
level ;  and  the  high  rates  of  subsistence  once  more  react  on  and 
control  population.  Under  the  influence  of  a  play  of  motives 
of  this  kind,  the  normal  price  of  corn  has  in  all  long-settled 
countries  been  kept,  as  a  permanent  state  of  things,  within  the 
limit  which  it  had  reached  at  a  comparatively  early  stage  of 
their  career,  in  this  respect  strongly  contrasting  with  the  course 
of  price  in  meat,  and  in  most  other  secondary  articles  of  con- 
sumption.    M.  Cherbuliez,*  in  connection  with  this  subject, 

*  "Precis  de  la  Science  ificonomique,"  vol.  i.,  pp.  356,  357. 


126  DEEIVATIVE  LAWS  OF    VALVE. 

has  remarked  that,  comparing  the  present  prices  of  meat  and 
corn  in  the  countries  of  Western  Europe  with  their  prices  in 
former  times,  it  has  been  found  that,  in  the  same  period  in 
which  the  price  of  corn  has  risen  in  the  proportion  of  one  to 
two,  the  price  of  meat  has  risen  in  the  proportion  of  one  to  ten. 
I  venture  to  assert  that,  at  all  events  since  the  beginning  of 
the  seventeenth  century,*  the  normal  price  of  wheat  has  not 
risen  in  England  more  than  the  depreciation  of  the  precious 
metals  since  that  time  will  fully  account  for.  According  to 
Adam  Smith,  the  average  price  of  wheat  during  the  first  sixty- 
four  years  of  the  eighteenth  century  ruled  at  about  twenty- 
eight  shillings  the  quarter,  and  this  price  he  considered  some- 
what lower  than  it  would  have  been  had  not  the  period  been 
marked  by  an  unusual  number  of  good  harvests.  In  the  last 
sixty-four  years  of  the  preceding  century,  the  price  of  wheat, 
according  to  the  same  authority,  stood  somewhat  higher.  Tak- 
ing the  whole  hundred  and  twenty -eight  years,  the  average 
price  of  wheat  probably  might  be  taken  as  ruling  between 
thirty  and  five-and-thirty  shillings.  Its  price  in  average  years 
now  would,  I  apprehend,  stand  at  somewhere  about  fifty  shil- 
lings the  quarter ;  and  the  difference  is  certainly  not  more  than 
a  reference  to  the  diminished  value  of  money  would  explain. 
The  reader  will  not  understand  me  as  adducing  these  rough 
and  summary  statements  in  proof  o^  the  principle  to  which  I 
am  calling  attention,  I  give  them  merely  for  the  purpose  of 
illustration;  but  I  have  little  doubt  that,  if  the  question  were 
gone  into  statistically,  and  due  allowance  made  for  changes  in 
the  value  of  money,  the  results  would  bear  out  the  conclusion 
at  which,  on  purely  economic  grounds,  I  have  arrived. 

*  I  have  no  doubt  the  date  might  be  put  some  centuries  farther  back ;  but  as  the 
question  of  price  in  the  preceding  centuries  becomes  complicated  by  the  combined 
effect  of  the  depreciation  of  money  and  the  deterioration  of  the  standard  coin,  and 
as  my  object  is  to  illustrate  my  position,  not  to  prove  it,  1  think  it  better  to  avoid 
entering  on  ground  tlint  mij^Iit  be  disputed. 


COURSE  OF  CULTIVATION.  127 

§  4.  One  or  two  consequences  involved  in  the  state  of  things 
I  have  been  describing  it  may  perhaps  be  worth  while  here  to 
point  out.  We  have  seen  that  in  the  early  stages  of  a  nation's 
history  the  tillage  of  the  soil  steadily  encroaches  upon  pasture 
farming,  until  the  latter  becomes  at  length  itself  a  branch  of 
agriculture.  A  little  later  on,  the  nation,  instead  of  being  an 
exporter  of  agi'icultural  produce,  becomes  an  importer;  and 
then  agricultural  industry  takes  a  new  turn.  Corn  can  now 
be  imported  from  abroad,  but  meat  can  not;  and,  whether  im- 
ported or  produced  at  home,  the  price  of  corn,  for  the  reasons 
I  have  stated,  has  no  tendency  to  rise  permanently  beyond  the 
level  it  has  already  attained,  whereas  the  price  of  meat  may 
advance  indefinitely.  It  follows  from  these  facts  that,  as  the 
nation  increases  its  numbers  and  needs  augmented  supplies  of 
food,  it  naturally  resorts  to  foreign  countries  to  supplement  the 
deficiency  in  its  corn  supply,  while  the  additions  needed  to  its 
supply  of  meat  are  obtained  by  extending  the  area  under  pas- 
ture at  home.  The  constant  tendency,  accordingl}-,  of  tillage 
to  encroach  upon  pasture,  which  up  to  this  time  had  been  the 
law  of  industrial  progress,  is  now  reversed ;  and  from  this 
point  the  area  of  pasture  tends  steadily  to  increase,  that  of  till- 
age to  diminish.  The  stage  in  question  had  been  reached  by 
England  just  about  the  time  that  Adam  Smith  wrote;  and 
notwithstanding  the  powerful  obstacles  offered  by  wars  and 
corn-laws  to  the  natural  course  of  development,  the  movement 
of  agriculture  has,  on  the  whole,  been  in  the  direction  I  have 
indicated.  At  the  present  time  it  is  decidedly  and  unequivo- 
cally so,  and  indeed  I  believe  the  fiict  is  very  generally  recog- 
nized. Another  consequence  depending  on  the  same  causes 
is  exhibited  in  the  movements  of  agricultural  rent.  In  the 
early  periods  of  a  nation's  history  the  lands  from  which  the 
highest  rent  can  be  obtained  are  those  which  offer  the  greatest 
advantages  for  tillage,  while  pasture  lands,  owing  to  the  low 
price  of  their  produce,  yield  comparatively  low  returns  in  rent. 


128  DERIVATIVE  LAWS   OF    VALUE. 

But  SO  soon  as  that  stage  in  its  advancing  career  is  reached 
when  corn  begins  to  be  imported  from  abroad,  and  meat  is 
raised  by  extending  the  area  of  pasture,  the  lands  which  thence- 
forward yield  the  highest  rent  are  those  whose  special  excel- 
lence lies  in  the  rearing  of  cattle.  I  have  no  statistics  which 
would  enable  me  to  illustrate  this  point,  but  the  inference  from 
the  facts  of  the  case  is  so  plain  that  I  think  it  may  be  advanced 
with  little  hesitation.  There  will  be  lands,  no  doubt,  which 
ma\^  equally  well  be  turned  to  either  purpose ;  but  where 
lands  have  special  aptitudes  for  one  of  the  two,  those  which 
are  fitted  in  the  highest  degree  for  the  raising  of  meat  (and 
with  meat  we  may  include  dairy  produce,  hops,  and  in  general 
those  articles  which  I  have  called  "secondary"  in  relation  to 
human  requirements)  are,  I  venture  to  think,  those  from  which 
after  the  period  indicated  the  highest  rent  will  be  obtained. 

§  5.  There  is  a  class  of  commodities  which  in  the  industry 
of  newly -settled  countries  occupies  an  important  place,  the 
course  of  whose  values  is  affected  by  rather  peculiar  conditions. 
I  refer  to  what  are  called  "accessory  products" — commodities 
which  are  produced,  not  separately,  but  as  parts  of  a  common 
industry,  and  of  which  the  most  obvious  examples  are  mutton 
and  wool,  beef,  tallow  and  hides,  gas  and  coke,  and  the  like. 
As  regards  the  values  of  such  commodities,  the  general  law 
determining  them  has  been  stated  by  Mr.  Mill  in  his  chapter 
on  "Some  Peculiar  Cases  of  Value."*  It  is  to  the  following 
effect:  Cost  of  production  here  operates, 'but  in  a  peculiar 
manner:  it  determines,  not  the  price  of  each  of  the  articles 
conjointly  produced,  but  the  sum  of  their  prices;  "their  val- 
ues relatively  to  each  other  being  those  which  will  create  a 
demand  for  each  in  the  ratio  of  the  quantities  in  which  they 
arc  sent  forth  by  the  productive  process."     The  working  of 

*  "Principles  of  Political  Economy,"  vol.  ii.,  book  iii.,  chap.  xvi. 


''ACCESSORY  PRODUCTS."  129 

this  principle,  under  the  changing  circumstances  of  advancing 
communities,  is  what  I  desire  now  to  call  attention  to. 

I  have  already  explained  the  course  of  price  in  one  of  the 
most  important  of  those  commodities — butcher's  meat ;  and  it 
was  then  seen  how  powerfully  that  course  is  affected  by  the 
difficulty  of  carriage  incident  to  that  article.  On  the  other 
hand,  the  facility  with  which  the  products  accessory  to  the 
production  of  butcher's  meat,  wool,  tallow,  and  hides,  are  con- 
veyed, is  not  less  powerful  in  the  opposite  sense  in  affecting 
the  course  of  their  prices.  Wool,  for  example,  rises  at  once  in 
a  new  country  to  the  price  ruling  in  the  great  markets  of  com- 
merce, minus  only  the  cost  of  carriage,  which,  owing  to  the 
great  portableness  of  wool,  bears  but  a  small  proportion  to  its 
total  value.  In  other  words,  the  demand  for  wool,  let  us  say 
for  wool  grown  in  Australia,  is  only  limited  by  the  demand 
of  the  entire  commercial  world ;  while  the  demand  for  meat 
raised  in  the  same  country  is  practically  confined  to  the  local 
markets.  It  is  evident  that  this  circumstance  must  lead,  in  the 
industrial  development  of  the  colony,  to  a  complete  divergence 
in  the  courses  of  price  of  the  two  commodities.  Indeed,  that 
divergence  has  already  become  very  sensible ;  for  though  it  is 
true  an  advance  has  occurred  in  the  price  of  wool  since  the 
early  days  of  Australian  settlement  (mainly  due,  as  I  believe, 
to  a  fall  in  the  value  of  money),  the  price  of  meat  has  advanced 
in  a  far  greater  degree.  Nor  is  it  difficult  to  foresee  that  it  is 
in  the  directions  thus  indicated  that  the  future  prices  of  the 
two  commodities  will  move.  In  both  cases  there  will  prob- 
ably be  an  advance  due  to  the  declining  value  of  gold;  but 
the  price  of  meat  will  be  urged  upward  by  other,  and  inde- 
pendent, causes.  The  durable  character  and  slight  bulkiness 
of  wool,  which  even  in  the  infancy  of  the  colony  sustained  its 
price  at  a  level  but  little  below  that  of  European  markets,  will, 
in  later  times,  when  the  now  sparse  communities  of  Australia 
have  grown  into  nations,  confine  it  within  limits  not  greatly 


130  DEBIVATIVE  LAWS   OF   VALUE. 

larger  than  it  now  commands,  b}'  furnishing  the  same  facilities 
for  its  importation  which  they  now  furnish  for  its  exportation 
— a  result  exactly  the  converse  of  what  we  found  to  be  the 
fate  of  meat,  of  which  the  perishable  nature,  as  it  excludes  it 
from  exportation  when  nations  are  young,  so  prevents  its  im- 
portation, at  least  on  any  great  scale,  when  the  increasing  de- 
mand of  the  growing  community  outruns  the  internal  facilities 
of  production. 

§  6.  In  comparing  the  state  of  prices  in  old  and  new  com- 
munities, the  circumstance  in  which  they  stand  perhaps  most 
strikingly  contrasted  is  that  which  has  been  brought  out  in 
the  foregoing  discussion — the  remarkable  difference  found  to 
exist  in  the  two  cases  between  the  i-elative  prices  of  corn  or 
other  products  of  prime  necessity,  on  the  one  hand,  and,  on 
the  other,  those  of  butcher's  meat,  dairy  produce,  and  such 
secondary  commodities.  The  contrast  was  not  unperceived 
by  Adam  Smith,  and  has  been  commented  on  at  much  length 
in  the  very  interesting  chapter  in  the  "Wealth  of  Nations" 
which  he  devotes  to  this  subject.  The  notion,  however,  which 
he  had  taken  up  as  to  a  limitation,  developed  with  the  prog- 
ress of  society,  to  the  advancing  price  of  the  latter  class  of 
articles,  prevented  him  from  seeing  the  full  significance  of  the 
facts  to  which  he  drew  attention ;  nor  indeed  are  his  infer- 
ences, even  within  the  range  of  what  he  had  perceived,  abso- 
lutely unexceptionable.  Nevertheless,  his  remarks  in  sum- 
ming up  the  results  of  his  investigation  are  sufl&ciently  strik- 
ing, and  may  fitly  be  quoted  here: 

"  But  though  the  low  money  price  either  of  goods  in  general,  or  of 
corn  in  particular,  be  no  proof  of  the  poverty  or  barbarism  of  the  times, 
the  low  money  price  of  some  particular  sorts  of  goods,  such  as  cattle, 
poultry,  game  of  all  kinds,  etc.,  in  proportion  to  that  of  corn,  is  a  most 
decisive  one.  It  clearly  demonstrates,  first,  their  great  abundance  in 
proportion  to  that  of  corn,  and  consequently  the  great  extent  of  the 


y 


MINERAL  PRODUCTS.  131 

land  which  they  occiipied  in  proportion  to  what  was  occupied  by  corn ; 
and,  secondly,  the  low  value  of  this  land  in  jDroportion  to  that  of  corn 
land,  and  consequently  the  uncultivated  and  unimproved  state  of  the 
far  greater  part  of  the  lands  of  the  country.  It  clearly  demonstrates 
that  the  stock  and  population  of  the  country  did  not  bear  the  same  pro- 
portion to  the  extent  of  its  territory  which  they  commonly  do  in  civil- 
ized countries,  and  that  society  was  at  that  time,  and  in  that  country, 
but  in  its  infancy.  From  the  high  or  low  money  price  either  of  goods 
in  general,  or  of  corn  in  particular,  we  can  infer  only  that  the  mines 
which  at  that  time  happened  to  supply  the  commercial  world  with  gold 
and  silver  were  fertile  or  barren,  not  that  the  country  was  rich  or  poor. 
But,  from  the  hjgh  or  low  money  price  of  some  sorts  of  goods  in  jiropor- 
tion  to  that  of  others,  we  can  infer,  with  a  degree  of  jirobaljility  that 
approaches  almost  to  certainty,  that  it  was  rich  or  poor,  that  the  greater 
part  of  its  lands  were  improved  or  unimproved,  and  that  it  was  either 
in  a  more  or  less  barbarous  state,  or  in  a  more  or  less  civilized  one." 

Strictly  interpreted,  tbe  line  of  this  inference  would  lead  to 
the  conclusion  that  Australia  and  California  were  poor  coun- 
tries, which  would  scarcely  be  considered  a  tenable  position ; 
but,  barring  this  slip,  as  we  may  regard  it,  of  substituting 
"rich  and  poor"  for  "old  and  young,"  the  tenor  of  the  re- 
marks is  essentially  sound  and  just,  and  shows,  considering 
the  time  when  they  were  written,  a  remarkable  insight  into 
the  causes  governing  industrial  development. 

§  7.  There  is  another  class  of  "extractive"  commodities 
which  does  not  fall  properly  under  any  of  the  foregoing  heads, 
on  which  a  few  remarks  seem  called  for  here.  These  are 
mineral  products,  comprising  the  coarser  and  precious  metals, 
coal,  and  a  few  other  articles.  The  circumstances  in  which 
products  of  this  class  differ  from  those  which  we  have  just 
considered  appear  to  be  chiefly  these  two :  In  the  first  place, 
the  sources  from  which  they  are  obtained  are  distributed  over 
the  earth  with  very  great  inequality  ;  some  countries  being  en- 
tirely destitute  of  them,  others  possessing  them  in  great  abun- 


132  DERIVATIVE  LAWS   OF    VALUE. 

dance,  and  of  the  most  varied  degrees  of  fertility  ;  and,  sec- 
ondly, their  production  is  more  mechanical  in  its  nature  than 
that  of  agricultural  or  pastoral  products,  from  which  it  results 
that  their  cost  of  production  is  more  directly  dependent,  than 
that  of  other  rude  products,  on  the  progress  of  mechanical  and 
chemical  invention.  To  follow  out  the  consequences  involved 
in  these  distinctions,  more  especially  in  the  instance  of  the 
precious  metals,  would  take  me  very  far  afield  indeed ;  nor  do 
I  propose  to  attempt  any  such  excursion  here.  I  shall  content 
myself,  as  regards  this  part  of  my  subject,  with  observing  in  a 
general  way,  that  the  circumstances  of  the  case  have  been  con- 
ducive in  the  past  history  of  the  world  to  great  variation  in 
the  normal  prices  of  mineral  products ;  nor  can  it  be  said,  in 
spite  of  the  fact  that  they  come  so  largely  under  the  influence 
of  scientific  invention,  that  the  movements  of  normal  price  in 
their  case  have,  with  the  progress  of  communities,  been  in  any 
constant  direction.  As  regards  future  movements  of  price  in 
this  class  of  products,  so  much  depends  on  the  discovery  of 
new  mines  and  coal  measures,  and  this  is  so  much  a  matter  of 
accident,  so  large  a  jDortion  of  the  world,  moreover,  still  re- 
mains unexplored,  that  I  do  not  think  we  can  be  said  to  pos- 
sess the  data  for  even  a  probable  conjecture. 

§  8.  I  turn  now  from  the  domain  of  raw  products  to  that 
other  great  industrial  division — manufacturing  industry.  Be- 
tween these  two  industrial  departments  it  is  not  indeed  possi- 
ble to  draw  a  perfectly  hard  and  fast  line,  nor  is  it  at  all  neces- 
sary that  we  should  do  so ;  it  is  sufficient  that  the  designations 
— raw  products  and  manufactured  goods — indicate  a  real  and 
important  distinction  in  things,  and  one  which  will  be  easily 
and  with  sufficient  correctness  apprehended.  What  I  have 
now  to  consider  is  the  course  which  normal  prices  take  with 
the  progress  of  society  in  the  latter  of  these  two  classes. 

And  here  this  remark  may  at  once  be  made :  that,  as  the 


MANUFACTURES.  133 

course  of  price  in  the  field  of  raw  products  is,  on  the  whole,  up- 
ward, so  in  that  of  manufactured  goods  the  course  is,  not  less 
strikingly,  in  the  opposite  direction.  The  reasons  of  this  are 
exceedingly  plain.  In  the  first  place,  division  of  labor — the 
first  and  most  powerful  of  all  cheapeners  of  production,  but  for 
which  there  is  in  extractive  industry  but  very  limited  scope — 
finds  in  manufacturing  industry  an  almost  unbounded  range 
for  its  application ;  and,  secondly,  it  is  in  manufacturing  indus- 
try also  that  machinery,  the  other  great  cheapener  of  produc- 
tion, admits  of  being  employed  on  the  largest  scale,  and  has  in 
fact  been  employed  with  the  most  signal  success.  It  follows 
at  once  from  these  facts,  taken  in  connection  with  the  further 
fact  that  industrial  invention  does  not  take  place  per  saUum, 
but  gradually — one  invention  ever  treading  on  the  heels  of  an- 
other— and  that  its  advance  seems  to  be  subject  to  no  limita- 
tion ;  it  follows,  I  say,  from  these  considerations,  that  that  por- 
tion of  the  cost  of  manufactured  goods  which  properly  belongs 
to  the  manufacturing  process  must,  with  the  progress  of  society, 
undergo  constant  diminution.  We  can  not,  indeed,  infer  di- 
rectly from  this  circumstance  that  the  value  of  such  goods 
must  decline,  because  the  manufacturing  process  represents  but 
a  portion  of  their  cost,  which  also  embraces  that  involved  in 
raising  the  raw  material  out  of  which  they  are  manufactured: 
and  we  have  already  seen  that  the  cost  of  this  element  tends  to 
advance  with  the  progress  of  society.  Whether,  therefore,  the 
price  of  manufactures  will  advance  or  decline  must  depend 
upon  whether  the  tendency  to  fall,  incident  to  improvements  in 
the  manufacturing  process,  will,  on  the  whole,  prevail  over  the 
tendency  to  advance  inherent  in  the  raw  material,  or  be  sur- 
passed by  the  latter  force.  On  this  point,  however,  save  in  the 
case  of  a  few  very  slightly  manufactured  articles,  such,  for  ex- 
ample, as  bread,  in  which  the  manufacturing  process  bears  but 
a  small  proportion  to  the  value  of  the  raw  material,  there  is  no 
room  for  a  moment's  doubt.     In  all  the  s:reat  branches  of  man- 


134  DERIVATIVE  LAWS  OF   VALUE. 

ufacturing  industry  the  portion  of  the  cost  incurred  in  the  man- 
ufacturing process  bears  in  general  a  large  proportion  to  that 
represented  by  the  raw  material,  while  the  influence  of  indus- 
trial invention,  in  reducing  this  portion  of  the  cost,  is,  as  every 
one  knows,  great  and  unintermitting  in  its  action.  From  all 
these  circumstances  it  results  that  the  tendency  to  a  reduction 
of  cost  in  manufactured  goods  must,  at  least  as  the  conditions 
of  production  stand  at  present,  prevail,  and  in  most  cases  pre- 
vail largely,  over  the  tendency  to  an  increase ;  and  that  conse- 
quently the  course  of  normal  prices  in  this  class  of  commodities 
is,  with  the  progress  of  society,  inevitably  and,  at  times,  rapid- 
ly downward.  The  illustration  of  this  truth  is  to  be  found  in 
the  history  of  all  manufacturing  countries,  and  pre-eminently  in 
that  of  Great  Britain.  There  are  few  commodities  of  any  im- 
portance falling  within  the  domain  of  manufacture  which  have 
not  within  the  last  century  or  two  fallen  to  a  small  fraction  of 
their  former  price. 

But  among  manufactured  commodities,  as  among  raw  prod- 
ucts, there  is  a  difference.  As  has  just  been  stated,  the  two 
great  cheapeners  of  production  are  division  of  labor  and  ma- 
chinery, and  the  degree  in  which  these  admit  of  being  ap- 
plied to  manufacture  is  mainly  dependent  upon  the  scale  on 
which  the  manufacturing  process  is  carried  on.  Those  manu- 
factures, therefore,  that  are  produced  upon  a  large  scale  are  the 
sort  of  manufactures  in  which  we  may  expect  to  find  the  great- 
est reduction  in  cost;  in  which,  therefore,  the  fall  in  price,  with 
the  progress  of  society,  will  be  most  marked.  But  the  manu- 
factures which  are  produced  upon  the  largest  scale  are  those 
for  which  there  exists  the  largest  demand — that  is  to  say,  are 
those  which  enter  most  extensively  into  the  consumption  of 
the  great  mass  of  the  people.  They  are  also,  I  may  add,  those 
in  which  a  fall  in  price  is  apt  to  stimulate  a  great  increase  of 
demand.  All  the  common  kinds  of  clothing,  furniture,  and 
utensils  fall  within  the  scope  of  this  remark ;  and  it  is  in  these, 


MANUFACTURES.  135 

rather  than  in  the  commodities  consumed  exclusively  or  main- 
ly by  the  richer  classes,  that  we  should,  accoixlingly,  expect  to 
find  the  greatest  marvels  of  cheapening.  There  is  indeed  one 
incident  of  the  case  the  bearing  of  which,  so  for  as  it  goes, 
would,  as  between  the  two  classes,  rather  favor  the  reduction 
of  the  more  luxurious  products.  The  manufactured  articles 
which  enter  into  the  consumption  of  the  masses  are,  as  a  rule, 
less  manufactured  than  those  which  enter  into  the  consump- 
tion of  the  rich — in  other  words,  the  amount  of  manufacture 
bestowed  upon  them  bears  a  smaller  proportion  to  the  raw 
material  than  is  the  case  with  the  more  elaborate  manu- 
factures. Such  coarser  manufactures,  therefore,  would  feel 
the  ejQfects  of  the  advancing  cost  of  the  raw  material  more 
sensibly  than  the  refined  sorts.  Thus,  for  example,  compar- 
ing a  piece  of  Brussels  lace  with  a  piece  of  common  calico, 
it  is  evident  that  there  would  need  to  be  a  very  great  change 
indeed  in  the  value  of  the  raw  material  to  produce  any  sen- 
sible effect  in  the  price  of  the  former  article;  whereas,  as 
recent  experience  has  taught  us,  an  advance  in  the  price  of 
the  raw  material  of  common  calico  is  capable  of  causing  very 
serious  effects  in  its  price.  This  circumstance,  therefore,  so 
far  as  it  goes,  certainly  favors  in  the  race  for  cheapness  the 
more  luxurious  as  asjainst  the  commoner  and  less  elaborate 
manufactures.  Nevertheless,  it  can  not  be  supposed  to  com- 
pensate the  advantages  due  to  the  causes  I  have  pointed  out 
which  fall  to  the  share  of  the  commoner  sorts.  It  is  in  this 
class  of  goods  that  the  most  remarkable  reductions  in  price 
have  been  accomplished  in  the  past;  and  it  is  in  them  probably 
that  we  shall  witness  in  the  future  the  greatest  results  of  the 
same  kind. 

§  9.  Hitherto  I  have  examined  the  derivative  laws  of  value 
in  so  far  only  as  they  are  exemplified  in  the  movements  of 
normal  prices.     It  will  be  interesting  now  to  consider  whether 


136  DERIVATIVE  LAWS  OF   VALUE. 

it  is  possible  to  discover  in  the  movements  of  market  prices 
any  corresponding  phenomena;  whether,  that  is  to  say,  the 
fluctuations  of  the  market,  as  they  occur  in  the  several  classes 
of  commodities,  conform  to  any  modes  of  action  analogous  to 
those  which  we  have  found  to  obtain  in  the  case  of  normal 
price. 

And  here  it  may  be  well  to  state  precisely  what  is  to  be  un- 
derstood by  a  "fluctuation  of  the  market,"  as  distinguished 
from  those  changes  of  normal  price  which  we  have  been  con- 
sidering. Normal  price,  as  we  have  seen,  is  governed,  accord- 
ing to  the  circumstances  of  the  case,  by  one  or  other  of  two 
causes — cost  of  production  and  reciprocal  demand  (in  the  sense 
explained  in  a  former  chapter).  A  change  in  normal  price, 
therefore,  is  a  change  which  is  the  consequence  of  an  alteration 
in  one  or  other  of  these  conditions.  So  long  as  the  determining 
condition — be  it  cost  of  production  or  reciprocal  demand — re- 
mains constant,  the  normal  price  must  be  considered  as  remain- 
ing constant;  but,  the  normal  price  remaining  constant,  the 
market  price  (which,  as  we  have  seen,  depends  on  the  opinion 
of  dealers  respecting  the  state  of  supply  and  demand  in  rela- 
tion to  the  particular  article)  may  undergo  a  change — may  de- 
viate, that  is  to  say,  either  upward  or  downward  from  the  nor- 
mal level.  Such  changes  of  price,  occurring  while  the  perma- 
nent conditions  of  production  remain  unaffected,  can  only  be 
temporary,  calling  into  action  as  they  do  forces  which  at  once 
tend  to  restore  the  normal  state  of  things:  they  may,  there- 
fore, be  properly  described  as  "  fluctuations  of  the  market ;" 
and  the  question  now  to  be  considered  is  how  far  we  can  con- 
nect such  phenomena  with  the  causes  which  determine  them, 
and,  by  stating  this  connection,  bring  them  within  the  domain 
of  scientific  law. 

With  a  view  to  this  inquiry,  the  first  point  to  be  attended  to 
is  the  condition  on  which  the  correspondence  of  market  with 
normal  price  depends.     It  is  evident  that  this  condition  can  bo 


MARKET  FL  UCTUA TIONS.  137 

no  other  than  such  an  adjustment  of  supply  to  demand — or,  to 
speak  more  strictly,  such,  a  state  of  opinion  among  dealers  re- 
specting the  adjustment  of  supply  to  demand — as  shall  produce 
the  correspondence  in  question — a  state  of  things  which  is  re- 
alized when  the  disposable  supply  is  regarded  as  sufficient,  and 
no  more  than  sufficient,  to  satisfy  the  demand  for  the  commod- 
ity which  exists  at  the  normal  level  of  price,  or,  as  we  may 
say,  in  Adam  Smith's  phrase,  to  satisfy  the  "effectual  de- 
mand." Bearing  this  in  mind,  it  will  be  seen  that  the  devia- 
tion of  the  market  price  from  the  normal  standard  will  be 
mainly  influenced  by  the  difficulties  in  the  way  of  adapting 
supply  to  "  effectual  demand ;"  or,  what  comes  to  the  same 
thing,  that  the  closeness  with  which  the  market  follows  the 
normal  price  will  depend  upon  the  facilities  available  for  this 
adaptation.  On  what,  then,  do  these  facilities  depend?  Chief- 
ly, it  appears  to  me,  on  the  three  following  circumstances : 
first,  on  the  conditions  of  production  as  affecting  the  commod- 
ity;  secondly,  on  the  nature  of  the  commodity;  and  thirdly, 
on  the  greater  or  less  urgency  of  human  wants  in  relation  to  it. 
In  tracing  the  derivative  laws  of  normal  prices  we  found 
that  the  most  fundamental  distinction  between  commodities, 
with  a  view  to  the  purpose  then  in  hand,  lay  in  the  line  of  sep- 
aration between  the  products  of  extractive  and  those  of  manu- 
facturing industry.  For  our  present  purpose  the  same  dis- 
tinction is  equally  important;  and  I  shall,  therefore,  once  again 
adopt  it.  Regarding,  then,  commodities  as  falling  under  one 
or  other  of  these  two  great  heads,  let  us  observe  how,  on  the 
one  hand,  manufactures,  on  the  other,  agricultural  and  pastor- 
al products,  stand  affected  by  each  of  the  three  conditions  just 
named. 

§  10.  Taking  manufactures  first,  it  is  evident  at  once  that, 
as  regards  conditions  of  production,  the  circumstances  of  the 
case  are  such  as  to  secure,  in  general,  great  rapidity  and  also 


138  DERIVATIVE  LAWS   OF    VALUE. 

great  certainty  in  bringing  commodities  to  market.  A  deal 
table  may  be  made  in  a  few  hours,  a  piece  of  cloth  in  a  few 
weeks,  a  moderate-sized  house  in  a  month  or  little  more.  Ta- 
bles, cloth,  and  houses  may  be  produced  with  certainty  in 
any  quantity  required.  It  results  from  this,  that  it  is  scarcely 
possible  that,  under  ordinary  circumstances,  the  selling  price 
of  a  product  of  manufacture  should  for  any  long  time  much 
exceed  its  normal  price ;  for  so  soon  as  the  excess  became  pal- 
pable, inasmuch  as  this  would  imply  exceptionally  high  prof- 
its for  the  producers,  production  would  receive  a  stimulus; 
and,  the  facilities  for  producing  the  article  being  great,  the 
supply  would  quickly  be  increased  until  it  overtook  the  "ef- 
fectual demand;"  whereupon  the  market  price  woukl  fall  to 
the  normal  level.  This,  I  say,  is  what  would  happen  "  under 
ordinary  circumstances;"  for  in  order  that  the  supply  should 
be  thus  rapidly  adjusted  to  the  increase  of  demand,  it  would 
be  necessary  that  the  latter  should  not  exceed  certain  limits. 
In  all  the  most  important  branches  of  manufacture  fixed  cap- 
ital, chiefly  in  the  form  of  machinery,  is  largely  employed; 
and  the  limited  quantity  of  such  capital  existing  in  a  country 
at  any  time  sets  limits  for  the  time  being  to  the  possible  aug- 
mentation of  supply.  If  the  demand  then  exceed  what  the 
means  of  production  thus  immediately  available  can  satisfy, 
the  market  price  may  rule  for  some  considerable  time  in  ad- 
vance of  the  normal  price— until,  that  is  to  say,  time  is  allow- 
ed for  erecting  buildings  and  machinery  suitable  to  the  in- 
creased requirements  of  the  community.  Even  on  such  oc- 
casions, however,  it  is  rare  that  the  elevation  of  price  which 
results  is  very  great;  for  here  come  into  play  those  other  con- 
ditions of  which  I  have  spoken.  The  nature  of  manufactures 
is,  in  general,  such  as  to  fit  them  admirably  for  distant  trans- 
port. Any  considerable  elevation  of  price,  therefore,  is  pretty 
certain  to  attract  supplies  from  remote  sources.  Further,  con- 
sidered in  their  relation  to  human  needs,  I  think  it  may  be 


FL  UCTUA  TION  IN  MANUFA CTUBES.  139 

said  of  manufactured  goods,  that  either  the  need  for  them  is 
not  very  urgent,  or,  where  it  happens  to  be  so,  substitutes 
more  or  less  suitable  for  the  commodity  or  commodities  which 
happen  to  be  scarce  may,  in  general,  easily  be  found.  From 
all  these  circumstances  it  results  that  an  advance  in  the  price 
of  a  manufacture,  so  soon  as  it  becomes  at  all  considerable, 
either  attracts  supplies  from  extraordinary  sources,  or  deters 
purchasers,  or  brings  substitutes  into  the  field — by  one  or 
more  of  such  means  setting  a  limit  to  deviations,  and  prevent- 
ing any  great  departure  from  the  usual  terms  of  the  market. 

So  far  as  to  deviations  from  the  normal  standard  'upward. 
With  regard  to  movements  in  the  opposite  direction,  the  cir- 
cumstances under  which  they  occur  are  commonly  of  this 
kind.  The  adaptation  of  supply  to  demand  is  a  tentative  proc- 
ess, and  when  any  sudden  change  in  demand  happens,  it  is 
not  easy  for  producers  at  once  to  determine  its  extent.  The 
result  is  that  mistakes  are  made.  Commodities  are  produced 
in  excess:  nay  more,  fixed  capital  is  created  in  excess;  and 
capital  once  committed  to  a  "fixed"  form  is  rarely  capable  of 
being  applied  to  any  purpose  other  than  that  for  which  it  was 
intended.  Hence,  the  supply  once  carried  beyond  the  due 
limits  of  the  "effectual  demand,"  it  becomes  difficult  to  reduce 
it  to  its  proper  proportions.  Mills  and  machinery  once  set  up, 
it  is  of  two  evils  often  the  least  to  continue  production  at  a 
moiety,  or  less,  of  the  ordinary  profit,  rather  than  to  allow  cap- 
ital to  lie  absolutely  unproductive :  one  hears  besides  that 
production,  from  motives  of  humanity  to  the  workmen  em- 
ployed, is  sometimes  carried  on  even  at  a  loss.  Owing  to 
causes  of  this  kind,  the  markets  for  manufactured  products 
sometimes  continue  for  many  months,  possibly  for  a  year  or 
more,  below  the  level  of  normal  price.  Here  again,  however, 
the  same  qualities  which,  as  we  saw,  keep  in  check  the  up- 
ward movement,  come  into  play  to  prevent  a  very  great  de- 
pression.    Manufactures  not  being  in  general  quickly  perish- 


140  DERIVATIVE  LAWS  OF  VALUE. 

able,  it  is  rarely  necessary,  in  their  case,  to  force  a  sale,  while 
their  great  portability  gives  them  access  to  distant  markets. 
On  the  whole,  then,  we  find  that,  having  regard  alike  to  the 
conditions  of  production,  the  nature  of  the  commodity,  and  the 
degree  of  urgency  of  human  needs  in  relation  to  it,  the  cir- 
cumstances of  the  case  are  such  as  to  reduce  within  rather 
narrow  limits  the  fluctuations  of  the  market  in  the  instance 
of  manufactured  goods."  And  this  is  the  more  noteworthy, 
inasmuch  as  it  is  precisely  in  this  class  of  commodities  that,  as 
we  have  seen,  the  changes  in  normal  price,  depending  as  they 
do  on  changes  in  the  cost  of  production,  are  most  frequent  and 
most  strikino;. 

The  state  of  things  just  described,  and  which  exhibits,  on 
the  whole,  a  somewhat  limited  range  of  variation  for  the  mar- 
ket (as  distinguished  from  the  normal)  value  of  the  products  of 
manufacturing  industry,  might  at  first  sight  seem  to  offer  but 
small  scope  for  the  sudden  creation  by  individuals  of  large  for- 
tunes; and  yet  we  know  that  it  is  in  manufacturing  indus- 
tries that  the  largest  and  most  rapid  fortunes  have  been  made. 
What  is  the  explanation  of  this  circumstance?  I  apprehend 
it  will  be  found  to  lie  mainly  in  the  rapidity  with  which  the 
circulating  portion  of  manufacturing  capital  admits  of  being 
turned.  The  same  rapidity  of  production  which  accelerates 
the  reduction  of  price  facilitates  the  turning  of  capital.  Ac- 
cordingly, when  such  a  chance  occurs  as  the  sudden  opening 
of  a  large  and  unlooked-for  market — such  an  occasion,  for  ex- 
ample, as  was  presented  by  the  rapid  growth  of  the  markets 
of  California  and  Australia  consequent  on  the  gold  discoveries; 
or  again,  such  as  the  American  civil  war  produced  for  the 

*  The  chief  exception  to  this  is  where  a  fluctuation  of  the  market  connects  it- 
self with  some  irregularit)'  in  the  supply  of  the  raw  material,  as  ha])])enecl  during 
the  cotton  famine.  But  in  this  case  the  phenomenon  should  rather  be  considered 
as  falling  under  our  next  head,  which  deals  with  the  market  fluctuations  of  raw 
products. 


FL  UCTUA  TION  IN  HA  W  PliOD  UCTS.  141 

linen  manufacturers,  when  the  failing  supply  of  calico  threw 
a  large  and  unexpected  consumption  upon  linen — when,  I  say, 
occasions  of  this  kind  occur,  those  whose  capital  is  already 
embarked  in  the  trade  can  generally — such  are  the  facilities  for 
rapidly  turning  capital  over  in  manufactures — contrive,  even 
at  a  moderate  advance  of  price,  to  realize  large  gains  before 
the  re-enforcements  of  fixed  capital  rendered  necessary  by  the 
altered  state  of  trade  can  be  brought  into  the  field.  This  is 
one,  and  the  principal,  source  of  the  very  large  fortunes  occa- 
sionally achieved  by  individuals  in  this  branch  of  trade.  For 
the  rest  I  should  conjecture  that,  where  exceptional  and  ex- 
traordinary gains  have  been  made,  the  end  has  been  accomplish- 
ed, less  through  manufacturing  operations  properly  so  called, 
than  through  speculations  carried  on  in  the  raw  material  of  the 
industry.  This,  at  least,  we  know,  was  notoriously  the  case 
with  the  large  fortunes  made  during  the  continuance  of  the 
American  civil  war. 

§  11.  Turning  now  to  the  products  of  agricultural,  pastoral, 
or,  more  generally,  "  extractive  "  industry,  we  find  the  circum- 
stances under  which  this  class  of  goods  is  brought  to  market 
in  all  respects  extremely  different  from  those  which  we  have 
just  examined,  and  such  as  to  permit  a  much  wider  margin 
of  deviation  for  the  market  from  the  normal  price.  Here  the 
period  of  production  is  longer,  the  result  of  the  process  much 
more  uncertain,  the  commodity  is  at  once  more  perishable  and 
less  portable,  and  human  requirements  in  relation  to  it  are 
mostly  of  a  more  urgent  kind.  The  shortest  period  within 
which  additions  can  be  made  to  the  supply  of  food  and  raw 
material  of  the  vegetable  kind  is  in  general  a  year,  and  if 
the  commodity  be  of  animal  origin,  the  minimum  period  is  con- 
siderably longer.  Again,  the  farmer  may  decide  upon  the 
breadth  of  ground  to  be  devoted  to  a  particular  crop,  or  upon 
the  number  of  cattle  he  will  maintain,  but  the  actual  returns 


142  DEBIVATIVE  LAWS   OF   VALUE. 

will  vary  according  to  the  season,  and  may  prove  far  in  excess 
or  far  in  defect  of  his  calculations.  These  circumstances  all. 
present  obstacles  to  the  adjustment  of  supply  to  demand,  and 
consequently  tend  to  produce  frequent  and  extensive  devia- 
tions of  the  market  from  the  normal  price.  JSTor  are  the  other 
conditions  of  the  case  such  as  to  neutralize  the  influence  of 
such  disturbing  agencies.  The  nature,  indeed,  of  some  of  the 
principal  agricultural  products  fits  them  sufficiently  well  for 
distant  transport,  and  so  far  tends  to  correct  fluctuations  of 
price.  But,  on  the  other  hand,  the  relation  of  these  products 
to  human  wants  is  such  as  greatly  to  enhance  that  tendency  to 
violent  fluctuation  incident  to  the  conditions  of  their  produc- 
tion. More  especially  is  this  the  case  with  the  commodity, 
whatever  it  may  be,  which  forms  the  staple  food  of  a  people. 
For  observe  the  peculiar  nature  of  human  requirements  with 
reference  to  such  a  commodity.  They  are  of  this  kind,  that, 
given  the  number  of  a  population,  the  quantity  of  the  staple 
food  required  is  nearly  a  fixed  quantity,  and  this  almost  irre- 
spective of  price:  except  among  the  very  poorest,  increased 
cheapness  will  not  stimulate  a  larger  consumption,  while,  on 
the  other  hand,  all,  at  any  cost  within  the  range  of  their  means, 
will  obtain  their  usual  supply.  The  consequence  is,  that,  when 
even  a  moderate  deficiency  or  excess  occurs  in  the  supply  of 
the  staple  food  of  a  people,  in  the  one  case  the  competition  of 
consumers  for  their  usual  quantum  of  food  rapidly  forces  up 
the  price  far  out  of  proportion  to  the  diminution  in  the  supply; 
in  the  other,  no  one  being  inclined  to  increase  his  usual  con- 
sumption, the  competition  of  sellers,  in  their  eagerness  to  find 
a  market  for  the  superfluous  portion  of  the  supply,  is  equally 
powerful  to  depress  it.  Those  who  have  studied  the  history 
of  English  prices  while  England  was  yet  under  the  regime  of 
Protection,  are  aware  of  the  cr)ormous  and  sudden  fluctuations 
which  from  time  to  time  occurred  under  the  influence  of  causes 
of  this  description.     Such  violent  fluctuations  will  scarcely  be 


FLUCTUATION  IN  STAPLE  FOOD.  143 

witnessed  again ;  but  even  under  the  moderating  rtgime  of 
free  trade,  the  peculiar  character  of  the  staple  food  in  its  re- 
lation to  the  requirements  of  human  beings  continues  from 
time  to  time  to  make  its  influence  felt,  and  to  produce  sudden 
and  considerable  changes  in  the  quotations  of  the  market. 
And  here  I  may  notice  the  converse  of  a  phenomenon  advert- 
ed to  just  now  in  connection  with  the  market  prices  of  the 
products  of  manufacture,  I  then  pointed  out  that,  while  cir- 
cumstances, on  the  whole,  contributed  to  steadiness  of  market 
value  in  such  products,  their  normal  values  were  in  an  especial 
degree  liable  to  extensive  changes.  In  the  case  of  agricultural 
products,  but  more  especially  in  the  case  of  staple  food,  this  re- 
lation is  inverted.  I  ventured  to  assert,  and  in  doing  so  I  was 
supported  by  the  authority  of  Adam  Smith,  that  of  all  com- 
modities whatever,  that  which  forms  the  staple  food  of  a  peo- 
ple is  the  commodity  of  which  the  normal  value  in  the  course 
of  time  undergoes  the  least  variation.  As  I  have  already  said, 
I  believe  we  should  find,  if  we  went  into  the  case,  that  during 
the  course  of  some  centuries  the  normal  value  of  wheat  (I  do 
not  say  the  normal  price)  has  altered  very  little  in  the  more 
advanced  countries  of  Europe.  On  the  other  hand,  for  the 
reasons  which  have  been  just  set  forth,  wheat  is,  of  all  impor- 
tant commodities,  that  one  which  exhibits,  in  the  movements 
of  the  market,  variation  in  the  most  extreme  degree.  Inci- 
dents of  this  kind,  it  may  be  observed  in  passing,  show  the 
absolute  necessity,  if  we  desire  to  elucidate  the  phenomena  of 
price,  of  distinguishing  between  market  and  normal  values  in 
economic  discussion.  The  phenomena  are  perfectly  distinct, 
and,  as  the  foregoing  examination  has  shown,  sometimes  fol- 
low, even  in  the  instance  of  the  same  commodities,  opposite 
laws.  What  likelihood,  then,  of  getting  a  correct  chart  of 
their  movements,  if  they  are  treated,  as  frequently  happens  in 
treatises  on  value,  as  one  and  the  same  manifestation,  and  con- 
founded together  as  the  subject-matter  of  a  single  exposition? 


144  DERIVATIVE  LAWS   OF   VALUE. 

§  12.  It  will  serve  still  further  to  elucidate  the  fluctuations 
of  market  price  within  the  sphere  of  extractive  industry  if  we 
regard  its  deviations  from  normal  price  under  two  aspects :  1, 
with  reference  to  its  intensity  ;  2,  with  reference  to  its  dura- 
tion. A  commodity  may  rise  very  suddenly  and  greatly  in 
price,  but  may  quickly  return  to  its  usual  terms  of  sale ;  or, 
on  the  other  hand,  rising  slowly  and  not  very  greatly  above 
its  ordinary  level,  it  may,  nevertheless,  continue  for  a  long  time 
at  the  elevation  thus  attained.  If  now,  bearing  this  distinc- 
tion in  mind,  we  compare  among  the  raw  products  of  industr}^ 
those  derived  from  the  vegetable  with  those  derived  from  the 
animal  kingdom,  I  think  we  shall  find  the  followinsf  rule  in  the 
main  to  hold  true :  namely,  that  vegetable  products  are  for  the 
most  part  subject  to  market  fluctuations  of  the  former  charac- 
ter— the  fluctuations,  that  is  to  say,  are  apt  to  be  sudden  and 
considerable,  but  comparatively  short;  while  the  market  prices 
of  commodities  of  animal  origin  rarely  rise  rajDidly,  but,  when 
a  sensible  advance  is  established,  commonly  remain  for  a  long 
time  at  the  enhanced  rate.  Thus  it  has  happened,  even  since 
the  establishment  of  free  trade,  that  the  price  of  corn  has, 
within  the  space  of  a  few  years,  been  halved  and  doubled 
again,  and  then  in  another  year  or  two  fjillen  once  more  to  a 
medium  level  ;*  but  no  such  sharp  oscillation  has,  so  far  as  I 
am  aware,  occurred  (at  least  in  recent  times)  in  the  price  of  any 
animal  product.  Butcher's  meat  is  perhaps,  among  animal 
products,  that  one  which  has  lately  exhibited  the  most  marked 
advance.     It  would,  however,  be  a  mistake  to  assume  that  the 

*  The  weekly  average  price  of  wheat,  for  example,  had  risen  in  1847  to  as  high 
a  point  as  102s.  per  quarter :  within  a  year  from  that  time  it  fell  to  little  more 
than  half  that  price,  and  in  1851  to  as  low  as  43s.  Witliin  two  years  more,  name- 
ly, about  the  commencement  of  the  Crimean  war — having  in  the  interval  oscillated 
slightly  about  the  i)oint  of  455. — it  rose  very  suddenly  to  73s. ;  and  in  January,  1854, 
attained  its  maximum  elevation  of  84s.,  from  which  point  it  gradually  declined. 
(See  Tooke's  "History  of  Prices,"  vol.  v.,  part  1,  §  14.) 


ANIMAL  AND  VEGETABLE  PRODUCTS.  145 

ffreat  rise  which  has  occurred  in  this  article  within  the  last 
twenty  years  represents  simply  a  market  fluctuation,  because 
there  is  reason  to  believe  that,  if  not  the  cost  of  production  in 
the  strict  sense  of  the  term,  at  all  events  the  cost  of  production 
as  measured  in  money,  has  during  this  time  very  considerably 
risen.  Unless,  therefore,  the  value  of  gold  were,  by  some  ex- 
traordinary freak  of  economic  nature,  to  recover  what  it  has 
lost,  there  is  not  the  smallest  probability  that  the  price  of  meat 
will  ever  return  to  the  level  at  which  it  stood  twenty  years 
ago.  The  present  advance,  therefore,  can  not  be  considered,  at 
all  events  for  the  chief  portion  of  its  amount,  as  a  mere  phe- 
nomenon of  the  market,  but  rather  as  a  definitive  rise  of  the 
normal  price  ;  and  it  may  be  added  that  the  same  is,  in  a  great- 
er or  less  degree,  true  of  most  instances  of  augmented  price 
that  have  recently  occurred.  To  return  to  the  difference  in  the 
incidents  of  market  price  between  vegetable  and  animal  prod- 
ucts, its  cause  is  mainly  to  be  found  in  the  conditions  of  their 
production.  Commodities  drawn  from  the  vegetable  kingdom 
can,  in  general,  be  multiplied  more  rapidly  than  those  taken 
from  the  animal ;  and,  therefore,  deviations  from  the  normal 
standard  of  price  require  for  their  correction,  in  this  case,  a 
shorter  period  of  time.  On  the  other  hand,  the  same  commod- 
ities are  subject  to  much  greater  uncertainty  in  the  process  of 
production  than  those  of  animal  origin,  the  agencies  employed 
being  here  far  less  amenable  to  human  control.  Animals  may, 
at  least,  be  housed,  and,  by  other  artificial  expedients,  sheltered 
from  the  violence  of  natural  agencies,  but  few  such  means  of 
mitigation  can  well  be  employed  when  the  production  of  veg- 
etables on  a  large  scale  is  the  business  in  hand.  Hence  the 
defalcations  of  supply  are  usually  more  considerable  in  their 
case,  and  hence  the  oscillations  of  market  price,  though  short- 
er, are  also  more  intense. 

The  most  important  exception  to  the  rule  just  laid  down  oc- 
curs in  the  case  offish  and  game,  but  it  is  an  exception  of  that 

10 


146  DEBIVATIVE  LAWS   OF   VALUE. 

kind  which  proves  the  rule;  for,  unlike  animal  products  ob- 
tained by  domestication  and  breeding,  the  supply  of  fish,  and 
in  a  less  degree  of  game,  is  singularly  at  the  mercy  of  causes 
uncontrollable  by  man,  while  the  time  requisite  for  catching 
them,  as  compared  with  the  time  required  for  the  completion 
of  ordinary  industrial  processes,  is  extremely  short.  The  prin- 
ciple, therefore,  on  which  the  rule  rests,  would  lead  us  to  ex- 
pect here  violent  and  brief  fluctuations,  more  especially  when 
we  take  into  account,  in  connection  with  the  conditions  of  their 
production,  the  extremely  perishable  nature  of  the  articles  in 
question — a  circumstance  which  compels  the  dealers,  at  almost 
any  sacrifice,  to  find  a  market  for  their  goods  within  a  strictly 
limited  lime. 


I^^RT    II. 

LABOR  AND    CAPITAL. 


P^HT    II. 

LABOR    AND    CAPITAL. 

CHAPTER  I. 

THE  RATE  OF  WAGES. 

§  1.  In  discussing  the  laws  of  value,  we  have  already  par- 
tially solved  the  problems  of  wages  and  profits.  For  it  has 
appeared  that,  where  production  assumes  the  character  of  a 
continuous  operation,  producers  are  in  effect  remunerated  out 
of  the  values  of  their  products,  and  that  consequently  wages 
and  profits  in  each  branch  of  production  must  stand,  in  the 
normal  state  of  things  and  on  the  average,  to  wages  and  profits 
in  every  other  branch,  in  the  same  relation  as  the  values  of 
the  products  from  which  they  are  derived.  "Relative  wages 
and  profits"  thus  follow  the  same  laws  which  govern  the  ex- 
change value  of  commodities.  In  other  words,  our  reasoning- 
lias  involved  this  conclusion,  that  w\iges  and  profits,  regarded 
as  relative  phenomena,  are  governed  by  Cost  of  Production, 
where  the  producers  are  in  effective  competition  with  one  an- 
other, and,  where  they  are  not,  by  Reciprocal  Demand.  So 
far  we  were  carried  toward  the  solution  of  the  wages  and 
profits  problem  in  the  discussion  of  that  of  value;  but  it  is 
important  that  we  should  not  overrate  the  progress  that  has 
been  effected.  Let  me  repeat:  what  the  doctrine  of  value  re- 
veals to  us  on  this  subject  is  the  causes  which  determine  the 
relative  remuneration  of  laborers  as  among  themselves,  and 
that  of  capitalists  as  among  themselves.     It  tells  us  why  some 


150  THE  BATE  OF   WAGES. 

classes  of  workmen  and  some  classes  of  capitalists  receive  the 
same  or  equivalent  remuneration,  while  in  other  cases  in- 
equalit}'  in  various  degrees  prevails;  but  it  tells  us  nothing  as 
to  what  determines  the  positive  remuneration  which  any  class 
of  capitalists  or  of  laborers  receives,  nor  as  to  the  causes  on 
which  depend  the  average  well-being  of  all  classes.  In  a 
word,  we  have  ascertained  what  produces  the  ripples  on  the 
surface  of  the  industrial  stream;  but  of  the  source  from  which 
the  waters  are  derived,  and  of  the  depth  and  force  of  the  cur- 
rent, nothing  has  yet  been  disclosed.  Why  is  the  remunera- 
tion of  industry,  as  a  whole,  such  as  we  find  it  to  be  in  the  va- 
rious countries  of  the  earth?  Why  is  it  maintained  at  one 
level  in  England,  at  another  on  the  continent  of  Europe,  at  yet 
another  in  Asia,  and  at  another  still  in  the  United  States? 
And  why  again  is  this  level  progressive  in  some  countries, 
stationary  in  others,  declining  in  a  third  class?  These  are 
questions  on  which  the  doctrine  of  value  throws  no  light,  and 
it  is,  therefore,  to  this  side  of  the  general  j^roblem  that  we  have 
now  to  direct  our  attention. 

§  2.  I  shall  perhaps  here  be  reminded  that  the  question  of 
the  rate  of  wages,  as  well  as  that  of  the  rate  of  profits,  under 
whatever  aspect  we  regard  them,  are,  and  can  never  be  other 
than,  problems  of  value;  since  the}'  are  simply  questions  of 
the  value  respectively  of  labor  and  abstinence;  and  that  they 
should  be  dealt  with  in  connection  with  that  subject  in  the 
general  theory  of  which  they  are  implicated.  I  am  certainly 
not  going  to  dispute  the  allegation  that  wages  and  profits  are, 
in  a  certain  sense,  phenomena  of  value.  "Rate  of  wages"  and 
"value  of  labor,"  "rate  of  profit"  and  "value  of  abstinence," 
are  no  doubt  equivalent  expressions;  and  for  m}-  part  I  see 
no  objection  to  regarding  the  doctrines  elucidating  these  phe- 
nomena as  constituting  branches  of  the  same  general  theor}' 
with  that  which  explains  the  value  of  commodities.     But  I 


u^ 


A  CASE  OF  EXCHANGE   VALUE.  151 

apprehend  the  objection,  embodied  in  the  above  remark,  points 
to  something  more  than  this.  What  some  students  of  Polit- 
ical Economy  seem  to  desiderate  is  a  comprehensive  formula 
which  shall  embrace  in  a  single  solution,  along  with  the  laws 
of  the  exchange  relations  of  commodities,  those  of  the  ex- 
change relations  of  labor  and  abstinence,  and,  along  with  these 
again,  the  laws  of  the  exchange  relations  of  land — that  is  to  say, 
the  theory  of  rent.  Some  such  aim  seems  to  have  guided  the 
speculations  of  Bastiat,  whose  work  on  the  "Harmonies  of 
Political  Economy  "  is  in  effect  an  essay  toward  the  determi- 
nation of  the  required  formula ;  but  the  result  of  Bastiat's  at- 
tempt is  not  encouraging  to  those  who  would  essay  the  same 
path.  He  produces,  indeed,  generalizations  which  seem  to  sat- 
isfy the  needed  conditions;  but,  closely  examined,  they  either 
collapse  into  mere  identical  propositions,  or  are  found  to  con- 
tain some  flagrant  petitio  principii.  Where  not  open  to  either 
of  these  objections,  they  will  be  found  to  relate  to  the  phe- 
nomena of  comparative  remuneration — that  is  to  say,  to  that 
portion  of  the  theory  of  wages  and  profits  which  I  have  ad- 
mitted and  shown  may  be  treated  in  connection  with  the  gen- 
eral laws  of  value. 

The  truth  is,  the  fundamental  facts  of  the  two  problems  are 
too  essentially  discrepant  to  admit  of  this  mode  of  treatment. 
Verbal  generalizations  are  of  course  easy.  For  example,  noth- 
ing is  easier  than  to  say  that  the  value  of  labor  (I  put  aside 
abstinence  and  profit  as  not  included  in  my  present  inquiry), 
like  the  value  of  other  things,  depends  upon  supply  and  de- 
maud — we  may  find  the  formula  in  any  newspaper  we  take 
up;  but  what  light  does  this  throw  upon  the  causes  which 
govern  the  values  either  of  labor  or  of  commodities?  Simply 
none  at  all,  or  next  to  none  at  all.  What  we  want  to  know  is, 
not  whether  an  increase  of  supply  will  cheapen  a  commodity 
or  will  cheapen  labor,  and  an  increase  of  demand  raise  the  price 
of  each — every  coster-monger  will  tell  you  this  much — but  what 


152  THE  RATE   OF   WAGES. 

it  is  whicli  governs  suppl}'  and  demand  in  each  case.  Now,  we 
can  not  take  a  step  toward  dealing  with  this  question  without 
being;  brou2;ht  face  to  face  with  the  fact  that  the  motives  which 
influence  human  beings  in  the  production  and  supply  of  com- 
modities are  not  those  which  influence  them  in  the  production 
and  supply  of  labor ;  in  other  words,  that  the  conditions  oper- 
ative in  the  two  cases  are  essentially  distinct.  If  this  is  not 
alread}'  apparent  to  the  reader,  a  brief  consideration  will  suffice 
to  make  it  so. 

First,  then,  the  production  of  commodities  is  an  onerous 
act.  which  will  only  be  undertaken  in  the  prospect  of  reward; 
whence  it  follows  that  the  supply  of  commodities  will  only 
be  secured  on  the  condition  of  this  prospect  presenting  itself. 
On  the  other  hand,  the  production  of  labor,  which  in  other 
words  is  the  production  of  human  beings,  is  not  an  onerous 
act,  but  a  consequence  of  complying  with  one  of  the  strongest 
instincts  of  humanity — an  instinct  which,  so  far  from  needing 
the  stimulus  of  reward,  can  only  be  kept  under  due  control  by 
powerful  restraints.  In  the  one  case,  action  entails  self-denial ; 
in  the  other,  self-denial  lies  in  abstaining  from  action.  Pro- 
spective recompense  indeed  comes  into  requisition  in  both 
cases;  but  in  the  one  it  is  needed  to  stimulate,  in  the  other  to 
control.  Exclude  the  prospect  of  reward  from  productive  in- 
dustry, tmd  the  supply  of  commodities  will  cease;  exclude  the 
prospect  of  the  reward  which  results  from  providence  in  re- 
producing human  beings,  and  the  supply  of  labor  will  run  to 
excess.  Nor  shall  we  have  need  to  modify  seriously  our  con- 
clusion upon  this  point,  if,  passing  from  the  primary  act  of 
reproducing  human  beings,  we  take  account  of  what  is  neces- 
sary in  order  to  fit  them,  once  in  existence,  for  an  industrial 
career.  They  must  be  fed  and  clothed;  they  must  be  brought 
up  in  a  certain  state  of  comfort;  and  they  must  receive  a  cer- 
tain education  —  conditions  which,  unlike  the  act  of  origina- 
ting their  existence,  call  for,  in  order  to  their  fulfillment,  con- 


LABOR  AND   COMMODITIES.  153 

tinuous  and  often  arduous  effort.  Here,  we  must  admit,  there 
is  an  analogy  between  the  preparation  of  a  human  being  for 
industrial  work,  and  the  production  of  a  commodity  for  the 
market;  both  processes  involve  cost.  But  there  still  remains 
this  broad  distinction,  which  effectually  discriminates  the  two 
'cases:  The  cost  in  the  production  of  a  commodity  is  under- 
gone deliberately,  and  with  a  distinct  view  to  industrial  ends: 
in  the  preparation  of  human  beings  for  their  career  in  life — I 
will  not  say  that  industrial  ends  have  no  place  at  all  in  the 
calculation,  but  I  will  assert  this,  that,  except  in  the  case  of 
technical  or  professional  education — a  mere  bagatelle  in  the 
general  expense  of  rearing  a  laborer — industrial  considerations 
are  entirely  subordinate  to  considerations  of  a  wider  and  alto- 
gether different  character,  A  man,  whatever  be  his  rank  of 
life,  brings  up  his  children — I  speak  of  the  common  case — as 
far  as  he  is  able,  according  to  the  ideas  prevailing  in  that  rank 
of  life.  He  does  so  mainly  because  he  feels  certain  obligations 
of  morality  and  affection  toward  them,  and  because  it  would 
be  shameful  to  do  otherwise.  His  children  once  arrived  at 
maturity,  no  doubt  his  views  and  theirs  will  take  a  direction 
more  distinctly  governed  by  industrial  considerations,  or  at 
least  considerations  bearing  upon  material  success  in  life ;  but 
at  this  point  the  suppl}''  of  labor  has  been  already  determined. 
It  is  now  in  existence;  and  the  industrial  motive,  now  that  it 
comes  into  play,  operates,  not  upon  the  aggregate  supply  of 
labor,  but  merely  upon  the  mode  of  its  distribution.  I  do  not 
deny,  indeed,  that,  in  a  certain  irregular  way,  and  taking  con- 
siderable periods  of  time,  the  supply  of  labor  as  a  whole  fol- 
lows the  demand  for  labor;  but  what  I  contend  is,  that  it  is 
not  connected  with  demand  by  the  same  links  which  connect 
the  supply  of  commodities  with  the  demand  for  them.  The 
adaptation  of  the  supply  of  commodities  to  the  demand  is  de- 
termined by  strictly  commercial  motives:  the  adaptation  of 
the  supply  of  labor  to  the  demand  is  not  so  determined.     Hu- 


154  THE  BATE   OF   WAGES. 

man  beings,  at  least  out  of  slave  countries,  are  not  produced 
to  meet  the  requirements  of  the  market,  but  for  entirely  differ- 
ent reasons.  Now,  this  being  so — the  conditions  determining 
the  phenomena  in  the  two  cases  being  essentially  distinct — 
what  can  come  of  forcing  the  solutions  by  dint  of  verbal  re- 
finements into  a  single  formula?  Simply  this:  either  our 
theory  will  be  flagrantly  untrue,  or  it  will  not  go  more  than 
word-deep,  and  our  show  of  explanation  will  merely  serve  to 
obscure  the  essential  facts  of  the  problem. 

§  3.  These  preliminary  points  being  disposed  of,  I  turn  now 
to  the  proper  subject  of  this  chapter — the  causes  determining 
the  general  or  average  rate  of  wages.  But  here  an  objection 
meets  me  on  the  threshold.  Are  we  justified  in  speaking  of  a 
"general"  rate  of  wages?  Are  the  facts  expressed  by  wages 
such  as  may  be  usefully  embraced  in  a  general  conception  and 
reasoned  about  as  an  aggregate  ?  A  recent  writer,  Mr.  Longe, 
has  denied  the  existence  of  any  facts  which  can  warrant  this 
expression : 

"  The  notion  of  all  the  laborers  of  a  country  constituting  a  body  of 
general  laborers  capable  of  competing  with  each  other,  and  whose 
"general"  or  "average"  wage  depends  upon  the  ratio  between  their 
number  and  the  aggregate  wage-fund,  is  just  as  absurd  as  the'  notion  of 
all  the  different  goods  existing  in  a  country  at  any  given  time — for  ex- 
ample, the  ships,  and  the  steam-engines,  and  the  cloth,  etc. — constituting 
the  stock  of  general  commodities,  the  general  or  average  price  of  which 
is  determined  ^y  the  ratio  between  the  sujoposcd  quantity  of  the  whole 

aggregate  stock  and  the  total  purchase-:C^nd  of  the  community 

How  could  the  shoe-makers  compete  with  the  tailors,  or  the  blacksmiths 
with  the  glass-l)lowers  ?  Or  how  should  the  capital  which  a  master- 
shoe-makcr  saved  by  reducing  the  wages  of  his  journeymen,  get  into  the 
liands  of  the  master-tailor  ?"* 

To  the  latter  questions  I  think  I  have  already  supplied  a 


*  "A  Eefutation  of  the  Wage-fund  Theory  of  Modern  Political  Economy," by 
r.  D.  Longe,  pp.  '>'>,  .'jG. 


MB.  LONGE'S  IDEA.  155 

sufficient  answer;  but  with  regard  to  the  objection  itself,  and 
the  illustration  by  which  it  is  supported,  the  reader  will  ob- 
serve to  what  length  it  goes.  The  author  of  the  passage  just 
quoted  is  apparently  unable  to  conceive  a  general  or  average 
rate  where  the  average  is  not  realized  in  each  individual  in- 
stance; otherwise  where  is  the  absurdity  of  speaking  of  a 
"general"  or  "average"  price  of  commodities?  If  the  no- 
tion of  a  general  or  average  price  of  commodities  is  absurd, 
then  what  does  the  writer  mean  when  he  speaks  of  a  rise  or 
fall  in  the  value  of  money?  Or  is  that  idea  also  beyond  his 
conceptive  power?  A  rise  or  fall  in  the  value  of  money  is 
only  another  name  for  a  fall  or  rise  of  general  or  average 
prices.  The  idea,  in  short,  which  Mr.  Longe  adduces  as  an 
extreme  example  of  absurdity,  is  simply  one  of  the  most  fa- 
miliar in  the  range  of  economic  speculation.  A  general  rate 
of  wages  is  neither  more  nor  less  easy  to  conceive,  neither 
more  nor  less  absurd,  than  general  prices.  I  think  I  know 
what  I  mean  when  I  say  that  prices  and  wages'  in  the  United 
States,  measured  in  greenbacks,  have  risen  generally  as  com- 
pared with  prices  and  wages,  measured  in  gold ;  that  the  aver- 
age rate  is  higher  in  the  one  case  than  in  the  other;  and  I  do 
not  think  I  should  be  very  wide  of  the  mark  if  I  attributed 
this  difference  to  the  different  proportions  in  which  purchasing 
power  measured  in  gold,  and  purchasing  power  measured  in 
greenbacks,  stand  related  to  commodities  and  labor.  Yet 
these  familiar  notions  are  what  Mr,  Longe  finds  it  impossible 
to  conceive. 

An  expression  in  the  passage  quoted  would  seem  to  imply 
that  universal  competition  among  laborers  is  an  essential  con- 
dition to  the  existence  of  an  average  rate  of  wages.  Why  it 
should  be  so  (except  on  the  supposition  I  have  referred  to,  that 
an  average  rate  requires  that  the  average  be  realized  in  each 
particular  instance)  I  am  quite  at  a  loss  to  imagine ;  but  Mr. 
Longe's  language  seems  further  to  imply  that,  as  a  matter  of 


156  THE  RATE   OF   WAGES. 

fact,  the  several  departments  of  industry  in  this  and  other 
countries  are  so  practically  isolated  from  each  other,  that  wages 
in  any  of  them  may  rise  or  fall  without  producing  any  effect 
beyond  the  particular  department.  I  have  already  considered 
the  extent  to  which  competition  is  really  effective  in  our  in- 
dustrial life,  and  have  endeavored  to  show  in  what  way  its  ex- 
istence or  non-existence  affects  relative  wages.  To  what  was 
then  said  I  desire  now  to  add  that,  even  where  competition 
among  laborers  is  not  effective,  and  where  consequently  wages 
are  not  in  proportion  to  sacrifices,  it  is  very  far  from  being 
true  that  any  such  industrial  isolation  obtains  as  Mr.  Longe's 
argument  would  suggest.  A  rise  of  wages,  let  us  suppose,  oc- 
curs in  the  coal  trade :  does  any  one  suppose  that  this  could 
continue  without  affecting  wages,  not  merely  in  other  mining 
industries  in  full  competition  with  coal-mining,  but  in  indus- 
tries the  most  remote  from  coal-mining,  industries  alike  higher 
and  lower  in  the  industrial  scale?  Most  undoubtedly  it  could 
not ;  and  if  any  one  questions  the  assertion,  he  may  have  his 
doubts  resolved  by  what  is  now  going  on  before  our  eyes. 
Nor  is  the  explanation  far  to  seek.  Though  laborers  in  cer- 
tain departments  of  industry  are  practically  cut  off  from  com- 
petition with  laborers  in  other  departments,  the  competition  of 
capitalists,  as  T  have  already  pointed  out,  is  effective  over  the 
whole  field.  The  communication  between  the  different  sec- 
tions of  industrial  life,  which  is  not  kept  open  by  the  move- 
ments of  labor,  is  effectually  maintained  by  the  action  of  capi- 
tal constantly  moving  toward  the  more  profitable  employ- 
ments. In  this  way  our  entire  industrial  organization  becomes 
a  connected  system,  any  change  occurring  in  any  part  of  which 
will  extend  itself  to  others  and  entail  complementary  changes. 
Not  only,  therefore,  are  we  justified  in  generalizing  the  various 
facts  of  wages  into  a  single  conception,  and  in  discussing  "gen- 
eral" or  "average"  wages,  but  we  have  grounds  for  regarding 
this  general  or  average  rate  as  constituted  of  elements  bound 


POSITION  OF  THE  CONTROVERSY.  157 

together  by  a  common  connection,  and  forming  parts  of  an 
integral  whole. 

§  4.  The  problem  of  the  general  rate  of  wages,  after  being 
the  occasion  of  perhaps  more  bitter  controversy  than  any  other 
within  the  field  of  social  inquiry,  seemed  some  years  ago  to 
have  received,  so  far  as  the  essentials  of  the  matter  went,  its 
definitive  solution.  The  great  stumbling-block  to  its  accept- 
ance had  long  been  the  law  of  population,  which,  in  spite  of 
the  overwhelming  evidence  adduced  in  its  support  by  Malthus, 
provoked,  as  all  the  world  knows,  a  violent  opposition,  and  led 
to  a  controversy  which,  extending  over  half  a  century,  has 
only  died  out,  if  indeed  it  has  died  out,  within  a  few  years. 
This  result  may  be  attributed  partly,  we  may  perhaps  assume, 
to  the  gradual  progress  of  sound  reason  getting  the  better  of 
the  strongest  prepossessions ;  but  it  has  of  late  been  powerfully 
helped  forward  by  the  influence  of  Mr.  Darwin's  great  work, 
in  which  the  obnoxious  principle — the  tendency  of  human  be- 
ings to  increase  faster  than  subsistence,  which  had  been  de- 
nounced as  at  once  demoralizing  to  man  and  discreditable  to 
the  Author  of  the  Universe — was  shown  to  be  merely  a  partic- 
ular instance  of  a  law  pervading  all  organic  existence.  How- 
ever this  may  be,  in  point  of  fact  those  attacks  upon  the  eco- 
nomic doctrine  of  wages  which  were  based  upon  objections  to 
the  Malthusian  doctrines — attacks  upon  what  we  may  call  the 
supply  side  of  the  wages  problem — have  for  some  time  come  to 
an  end.  We  may  therefore  assume  that  so  much  of  the  prob- 
lem has  been  solved  to  the  general  satisfaction  of  competent 
thinkers,  and  are  consequently  dispensed  from  entering  on  its 
consideration  here. 

But  the  controversy  has  scarcely  been  closed  on  one  side 
when  it  has  been  opened  on  another.  The  law  of  the  supply 
of  labor  is  no  longer  called  in  question ;  but  several  able 
writers   have   within   a   few  years,   in    dissertations   directed 


158  THE  BATE   OF   WAGES. 

against  what  is  known  as  the  "Wages-fund"  doctrine,  chal- 
lenged the  view  hitherto  received  as  to  the  law  of  its  demand. 
Foremost  among  these  has  been  Mr.  Thornton,  who,  in  his 
book  on  "  Labor,"*  has  made  the  Wages-fund  doctrine  the  ob- 
ject of  a  special  and  elaborate  attack ;  nor  is  it  possible  to  deny 
the  ability  and  skill  with  which  the  assault  has  been  conducted, 
when  we  find  that  he  can  boast,  as  among  the  first-fruits  of 
his  argument,  no  less  a  result  than  the  conversion  of  Mr.  Mill. 
Such  all  event,  it  must  be  frankly  conceded,  affords  an  ex- 
tremely strong  presumption  in  favor  of  the  soundness  of  Mr. 
Thornton's  view.  Mr.  Mill  had  himself  been,  if  not  the  origi- 
nator of  the  Wages- fund  doctrine,  certainly  its  most  able  and 
effective  expositor;  and  this  doctrine,  supported  by  his  argu- 
ment, and  implicated  in  his  general  theory,  he  has  been  led  b}- 
Mr.  Thornton's  reasoning  to  discard.  I  say,  it  can  not  be  de- 
nied that  such  a  circumstance  constitutes  a  weighty  presump- 
tion in  favor  of  Mr,  Thornton's  view  ;  but  I  must  also  contend 
that  it  amounts  to  no  more  than  a  presumption.  In  the  free- 
dom of  science,  I  claim  for  myself  the  right  of  examining  the 
doctrine  on  its  merits.  I  must  own  myself  unconvinced  by 
Mr.  Thornton's  reasonings,  strengthened  and  enforced  though 
these  have  been  by  the  powerful  comments  of  Mr.  Mill.f  Not 
indeed  that  I  am  prepared  to  defend  all  that  has  been  written 
on  what,  for  convenience,  I  may  call  the  orthodox  side  of  this 
question,  but  I  believe  the  view  maintained  by  those  who  have 
written  on  that  side,  and  pre-eminently  the  view  maintained 
by  Mr.  Mill  himself — taking  it  as  set  forth  in  his  original  work, 
not  as  explained  in  his  retractation — to  be  substantially  sound, 
though  needing,  as  it  seems  to  me,  at  once  fuller  development 
and  more  accurate  determination  than  it  has  yet  received. 

*  "On  Labor:  its  Wrongful  Claims  and  Ixiglitfiil  Dues,"  etc.,  by  W.  T.  Thorn- 
ton.    Second  Edition,  1870. 
t  See  Fortnightly  Review  for  May  1,  18f!t). 


THE  WAGES-FUND  THEORY.  159 

§  5.  I  can  not,  I  think,  better  open  the  examination  which  I 
propose  to  make  of  this  subject,  than  by  quoting  the  following 
statement  from  Mr.  Mill's  "Principles  of  Political  Economy," 
of  the  nature  of  the  Wages-fund,  and  its  place  in  the  industrial 
economy  : 

"  Wages,  then,  depend  mainly  upon  the  demand  and  supply  of  labor ; 
or,  as  it  is  often  expressed,  on  the  proportion  between  population  and 
capital.  By  population  is  here  meant  the  number  only  of  the  lal^oring 
class,  or  rather  of  those  who  work  for  hire ;  and  by  capital,  only  circu- 
lating capital,  and  not  even  the  whole  of  that,  but  the  part  which  is  ex- 
pended in  the  direct  purchase  of  labor.  To  this,  however,  must  be  add- 
ed all  funds  which,  without  forming  a  part  of  capital,  are  paid  in  ex- 
change for  labor,  such  as  the  wages  of  soldiers,  domestic  servants,  and 
all  other  unproductive  laborers.  There  is  unfortunately  no  mode  of  ex- 
pressing by  one  familiar  term  the  aggregate  of  what  may  be  called  the 
Wages-fund  of  a  country :  and  as  the  wages  of  productive  labor  form 
nearly  the  whole  of  that  fund,  it  is  usual  to  overlook  the  smaller  and 
less  important  part,  and  to  say  that  wages  depend  on  population  and 
capital.  It  will  be  convenient  to  employ  this  expression,  remembering, 
however,  to  consider  it  as  elliptical,  and  not  as  a  literal  statement  of  the 
entire  truth."* 

As  I  understand  this  passage,  it  embraces  the  following 
statements:  1st,  "  Wages-fund"  is  a  general  term,  used  in  the 
absence  of  any  other  more  familiar,  to  express  the  aggregate 
of  all  wages  at  any  given  time  in  possession  of  the  laboring- 
population  ;  2d,  on  the  proportion  of  this  fund  to  the  number 
of  the  laboring  population  depends  at  any  given  time  the  av- 
erage rate  of  wages;  3d,  the  amount  of  the  fund  is  determined 
by  the  amount  of  the  general  wealth  which  is  applied  to  the 
direct  purchase  of  labor,  whether  with  a  view  to  productive  or 
to  unproductive  ein[)loyment.  If  the  reader  will  carefully  con- 
sider the.se  several  propositions,  I  think  he  will  perceive  that 
they  do  not  contain  matter  which  can  be  properly  regarded  as 


"Principles  of  Political  Econuniy,'  book  ii..  chap.  xi. 


160  THE  BATE   OF   WAGES. 

open  to  dispute.  The  first  is  little  more  than  a  definition  ;  at 
most,  it  assumes  that  that  exists  in  the  aggregate  which  is  ad- 
mitted to  exist  in  detail.  The  second  merel}'  amounts  to  say- 
ing that  the  quotient  will  be  such  as  the  dividend  and  divisor 
determine.  The  third  equally  contains  an  indisputable  asser- 
tion ;  since,  whatever  be  the  remote  causes  on  which  the  wages 
of  hired  labor  depend  (and  the  question  at  present  is  exclusive- 
ly of  hired  labor)  the  proximate  act  determining  their  aggregate 
amount  must  in  all  cases  he  a  direct  purchase  of  its  services.  In 
truth,  the  demand  for  labor,  thus  understood,  as  measured  b}' 
the  amount  of  wealth  applied  to  the  direct  purchase  of  labor, 
might  more  correctly  be  said  to  be,  than  to  determine,  the 
Wages-fund.  It  is  the  Wages-fund  in  its  inchoate  stage,  dif- 
fering from  it  only  as  wealth  just  about  to  pass  into  the  hands 
of  laborers  differs  from  the  same  wealth  when  it  has  got  into 
their  hands.  Our  analysis  thus  leads  us  to  the  result,  that  the 
passage  quoted  from  Mr.  Mill  can  not  be  taken  to  contain  con- 
troversial matter.  The  statements  are  such  as  may  not  be  dis- 
puted, once  their  meaning  is  clearly  understood.  At  the  same 
time  it  must  be  freely  confessed  that  it  contains  no  solution  of 
the  wages  problem:  it  is  not  a  solution,  but  a  statement  of 
that  problem — a  statement,  as  it  seems  to  me,  at  once  clear, 
comprehensive,  and  succinct,  presenting  in  clear  light  the  two 
factors  which  constitute  the  phenomenon — the  Wages-fund  re- 
sulting from  the  direct  demand  for  labor,  and  the  laboring 
population  forming  the  supply.  The  solution  will  consist  in 
connecting  these  factors  with  those  principles  of  human  nature 
and  facts  of  the  external  world  which  form  the  premises  of 
economic  science.* 


*  "The  political  economy  of  the  wages  question,"  sa3's  Mr.  Brassey  (p.  251), 
"is  simple  enough."  Certainly  it  is,  if  it  consists  in  showing  that  every  rise  or 
fiill  of  wages  is  traceable  to  a  change  in  the  relation  of  snj)j)ly  and  demand.  But 
it  seems  to  me  that  Mr.  Brassey  has  mistaken  the  statement  of  the  problem  for  its 
solution.      It  needs  no  proof  surely  to  see  tiiat  if  XIU,000,000  be  added  to  the  ex- 


THE   WAGES-FUND   THEORY.  161 

§  6.  As  I  have  already  observed,  it  is  with  a  portion  only 
of  this  problem  that  we  have  need  now  to  concern  ourselves. 
The  causes  governing  the  supply  of  labor  may  be  taken  as 
sufficiently  elucidated.  Our  business  is  with  the  causes  gov- 
erning the  demand — governing  the  amount  of  wealth  applied 
to  the  direct  purchase  of  labor,  or,  as  we  may  equally  well  ex- 
press it,  governing  the  Wages-fund. 

It  is  here  for  the  first  time  that  room  for  controversy  really 
occurs ;  and  though  the  issue  has  not  always  been  taken  with 
precision,  it  is  in  effect  on  the  point  just  indicated  that  the  re- 
cent controversy  turns.  By  the  upholders  of  the  Wages-fund 
doctrine  the  view  taken  is,  that  the  amount  of  a  nation's  wealth 
expended  in  wages  at  any  given  time  stands — the  character  of 
the  national  industries  and  the  methods  of  production  employ- 
ed being  given — in  a  definite  relation  to  its  general  capital, 
while  the  amount  of  its  general  capital  is  determined  by  cer- 
tain economic  conditions  resulting  from  the  character  of  the 
people  and  the  nature  of  their  environment. ""  The  Wages- 
fund,  therefore,  according  to  this  view,  depends,  the  conditions 
of  production  being  given,  proximately  on  the  amount  of  a 
nation's  capital,  and  ultimately  on  those  more  remote  causes 
which  control  the  growth  of  this  fund.     It  is  against  this  view 


isting  capital  ef  a  country,  and  the  greater  portion  applied  to  the  direct  purchase 
of  labor  (the  supply  of  labor  and  other  tilings  continuing  the  same),  wages  must 
rise;  or  that  tiie  withdrawal  of  a  great  sum  from  the  payment  of  wages,  as  on  the 
occasion  of  a  commercial  collapse,  must  on  the  other  hand,  cateris  paribus,  in- 
volve a  fall  of  wages.  To  tell  us  this  is  not  to  solve  the  wages  question,  but  to 
state  it.  What  we  want  to  know  is  what  determines  the  relation  of  supply  and 
demand— of  the  Wages-fund  to  the  laboring  population.  AVhy  is  that  relation 
such  as  to  yield  one  rate  of  wages  in  the  United  States,  another  rate  in  Great 
Britain,  and  a  tiiird  rate  on  the  contineiit  of  Europe?  If  Mr.  Brassey  would 
tairly  address  himself  to  this  problem,  I  think  he  would  find  tluit  tlie  political 
economy  of  the  wages  question  is  not  quite  so  "  simple  "  as  he  supposes. 

*  As  set  forth,  for  example,  in   Mill's    "Principles   of  Political   Economy," 
book  i.,  chap.  xi. 

11 


1G2  THE  RATE   OF   WAGES. 

of  the  connection  of  facts  that  the  opponents  of  the  impugned 
doctrine  have  directed  their  arguments.  According  to  Mr. 
Thornton  there  is  no  portion  of  a  nation's  wealth  "  determined  " 
toward  the  payment  of  wages.  The  amount  which  actually 
reaches  the  laborer  is,  I  presume  he  would  say,  the  result  of 
circumstances  (which,  as  not  being  "  determined,"  must  be  re- 
garded as  accidental)  of  which  the  most  important  are  those  in- 
cidents in  the  position  respectively  of  employer  and  employed 
which  favor  or  restrict  the  capacity  for  bargaining.  And  sub- 
stantially the  same  language  is  held  by  Mr.  Longe.  Eather  in- 
consistently, however,  while  denying  the  determination  of  any 
portion  of  the  general  wealth  to  the  payment  of  wages,  Mr. 
Longe  propounds  a  theory  to  explain  the  fact  of  this  deter- 
mination. The  determining  cause,  he  says,  is  not,  as  alleged 
in  the  Wages-fund  theory,  the  economic  conditions  affecting 
the  growth  of  capital,  but  "the  demand  for  commodities." 
"  The  demand  for  commodities  certainly  does  not  directly  de- 
termine the  quantity  of  labor  or  number  of  laborers  in  a  coun- 
try, nor  the  quantity  of  corn  or  other  things  available  for  the 
maintenance  of  laborers,  but  it  does  determine  the  quantity  of 
labor  employed,  and  the  quantit}'  of  wealth  spent  in  the  wages 
of  laborers"  (p.  46).  As  he  elsewhere  puts  it,  "the  demand 
for  commodities  which  can  only  be  got  by  labor  is  as  much 
a  demand  for  labor  as  a  demand  for  beef  is  a  demand  for 
bullocks." 

§  7.  Such  are  the  positions  taken  in  this  controversy  by  the 
disputants  on  either  side.  In  proceeding  to  state  the  doctrine 
in  question,  with  a  view  to  meet  the  objections  which  have 
been  advanced  against  it,  it  will  be  convenient  in  the  first  place 
to  examine  the  theory  put  forward  by  Mr.  Longe,  and  which 
apparently  finds  favor  with  Mr.  Thornton  also,  as  to  the  bear- 
ing of  the  demand  for  commodities  upon  the  remuneration  of 
labor;  I  shall  then  set  forth  the  grounds  on  which  the  doctrine 


THE  DEMAND  FOB  COMMODITIES.  163 

of  the  Wages-fuiKl  rests;  and  having  done  this,  I  shall  be  in  a 
position  to  consider  the  arguments  advanced  by  Mr.  Thornton 
against  the  existence  of  any  "determining"  causes  in  the  case. 

Mr.  Longe  has  refused  to  admit  the  existence  of,  and  has 
thrown  doubt  upon  the  possibility  of  conceiving,  "a  general 
rate  of  wages."  He,  however,  allows,  at  least  by  implication, 
that  we  may  conceive  an  aggregate  quantity  of  wealth  as  spent 
in  wages,  or  what  I  call  a  Wages-fund ;  for  in  the  passage  just 
quoted  he  tells  us  the  cause  which  determines  the  amount  of 
this  fund.  It  is,  he  says,  "the  demand  for  commodities."  I 
need  scarcely  remark  that  the  view  here  expressed  is  not  pe- 
culiar to  Mr.  Longe.  It  is  in  truth  about  the  most  popular  of 
all  popular  fallacies.  From  this  root  has  sprung  a  whole  clus- 
ter of  maxims,  such  as  that  "the  extravagance  of  the  rich  is 
the  gain  of  the  poor,"  that  "  profusion  and  waste  are  for  the 
good  of  trade,"  and  others  of  lilvc  import  which  have  in  their 
time  done  much  to  perplex  and  demoralize  mankind,  and  are 
still  far  from  being  extinct.  That  there  is  much  plausibility 
in  the  view  here  taken  of  the  economy  of  industr}'-  can  not  in- 
deed be  denied,  since  otherwise  how  should  it  have  obtained 
the  almost  universal  vogue  which  it  enjoys?  It  will  therefore 
be  worth  while  to  sift  with  some  care  the  grounds  of  an  opin- 
ion which  has  certainly  exercised  no  small  amount  of  evil  in- 
fluence on  modes  of  thinking  and  acting  in  economic  affairs. 

To  state  in  its  strongest  form  the  argument  for  the  view 
which  I  am  combating:  What,  it  may  be  asked,  is  the  primary 
consideration  that  weighs  with  a  capitalist  in  investing  his 
wealth  ?  Is  it  not  the  prospect  of  finding  a  sale  for  his  prod- 
ucts— in  other  words,  the  demand  for  commodities?  And,  as 
this  is  that  which  first  moves  him  to  action,  is  it  not  also  that 
which  governs  the  proportions -of  his  operations  after  he  has  en- 
tered upon  action?  Increase  the  demand  for  his  commodities, 
and  he  will  increase  the  amount  of  his  investment;  diminish 
the  demand,  and  he  will  diminish  the  investment.     But,  other 


164  THE  RATE   OF   WAGES. 

things  being  the  same,  the  greater  the  investment,  the  greater 
will  be  the  amount  of  his  wealth  spent  in  the  wages  of  labor. 
In  proportion,  therefore,  as  the  demand  for  his  commodity  is 
large,  his  expenditure  in  wages  will  be  large.  This  is  true  of 
every  capitalist  and  of  every  branch  of  production.  From 
which  the  conclusion  seems  to  follow  that  the  quantity  of 
wealth  spent  in  the  wages  of  labor — i.  e.,  the  aggregate  Wages- 
fund — is  determined  by  the  demand  for  commodities. 

It  seems  to  follow,  but  it  does  not  follow ;  for,  looking  close- 
ly into  the  above  reasoning,  we  find  that  while  the  conclusion 
is  an  assertion  as  to  quantity,  the  premises  relate  to  propor- 
tion. The  existence  of  a  demand,  for  example,  for  houses 
in  a  given  degree  of  intensity  will  cause  a  certain  quantity  of 
the  national  capital  to  be  directed  to  the  building  of  houses ; 
but  it  will  not  and  can  not  determine  what  that  quantity  shall 
be.  This  will  depend,  in  the  first  place,  upon  the  amount  of 
the  total  capital  available  for  investment;  and  secondly,  on  the 
relative  force  of  the  demand  for  houses  as  compared  with  the 
demand  for  other  things.  What  the  demand  for  houses  and 
for  other  things  determines  is  merely  the  proportions  in  which 
the  available  capital  of  a  country  shall  be  distributed  over  the 
field  of  production.  Those  proportions  will  adapt  themselves 
to  the  proportions  of  the  various  demands  for  commodities. 
Increase  the  demand  for  a  given  commodity,  and,  other  things 
being  the  same,  a  larger  proportion  of  the  available  capital  will 
be  directed  toward  its  production;  diminish  the  demand  for  it, 
and  a  contrary  result  will  ensue:  but  neither  in  the  one  case 
nor  in  the  other  will  the  demand  for  the  commodity  determine 
how  much  capital  shall  be  devoted  to  its  production ;  nor  for 
similar  reasons  will  the  demand  for  commodities  in  general 
determine  a  like  result  with  regard  to  them.  It  is  as  if  we  ar- 
gued, that  because  a  man  distributes  his  income  in  the  propor- 
tion of  his  various  needs,  spending  more  on  those  articles  to 
purchase  which  a  larger  sum  is  wanted  to  satisfy  his  require- 


THE  DEMAND  FOR  COMMODITIES.  165 

ments,  therefore,  the  greater  his  needs  the  larger  must  be  his 
income.  Large  or  small,  his  income  will  be  distributed  in  pro- 
portion to  his  needs;  and,  large  or  small,  the  Wages-fund  will 
be  distributed  over  the  various  industrial  occupations  in  the 
proportions  indicated  by  the  demand  for  commodities.  But 
this  tells  us  nothing  as  to  M'hat  determines  either  the  amount 
of  a  man's  income,  or  the  amount  of  the  Wages-fund.  We  are 
thus  brought  to  Mr.  Mill's  conclusion,  that  the  demand  for  com- 
modities determines  the  direction  of  investment  and  production, 
but  not  the  more  or  less  of  what  the  laborer  on  an  average  re- 
ceives. 

But  it  may  be  well  perhaps  to  give  the  argument  a  more 
practical  direction ;  and  for  this  purpose  I  will  ask  the  reader 
to  consider  some  of  the  consequences  which  would  follow  from 
this  theory  of  which  Mr.  Longe  has  made  himself  the  expos- 
itor, in  connection  with  the  condition  of  labor  in  different 
countries.  Supposing  it  to  be  true  that  the  amount  of  wealth 
spent  in  the  wages  of  labor  is  determined  by  the  demand  for 
commodities,  then  it  will  follow  that,  given  the  demand  for 
commodities,  we  are  given  the  amount  of  wealth  spent  in  the 
wages  of  labor.  The  latter  will  vary  with  the  former,  and  the 
Wages-fund  will,  on  this  view,  bear  a  constant  proportion  to 
the  aggregate  demand  for  commodities.  Now,  as  has  been  ex- 
plained in  a  former  chapter  of  this  work,*  the  aggregate  de- 
mand for  commodities  depends  on  the  aggregate  production 
of  commodities.  Speaking  broadly,  all  commodities  produced 
under  a  regime  of  division  of  labor  are  produced  in  order  to  be 
exchanged.  The  more  each  man  produces,  the  more  he  will 
have  to  sell,  and  the  more  he  will  be  able  to  buy.  It  results, 
therefore,  from  the  theory  we  are  considering,  that  the  aggre- 
gate wealth  appropriated  to  the  use  of  the  laboring  population 
must  always  bear  a  constant  proportion  to  the  gross  produce    . 

*  See  ante,  pp.  23-2G. 


166  THE  BATE   OF   WAGES. 

of  the  community.  Now,  how  does  this  accord  with  the  facts 
of  wages  as  presented,  let  us  say,  in  England  and  in  the  United 
States?  According  to  computations  made  by  Mr.  Wells,*  the 
United  States  Commissioner,  taken  in  connection  with  som.e 
made  by  Mr.  Dudley  Baxter  for  this  country,  it  would  seem 
that  the  annual  gross  produce  of  the  United  States  per  head 
of  the  population  bears  to  the  annual  gross  produce  of  the 
United  Kingdom  per  head  of  the  population  the  proportion  of 
$140  to  $184.  The  United  Kingdom  includes  Ireland,  which 
can  not  but  sensibly  reduce  the  average  for  this  country. 
Omitting  Ireland,  the  annual  per  capita  produce  of  Great  Brit- 
ain and  of  the  United  States  would,  therefore,  according  to 
these  computations,  be  as  nearly  as  possible  the  same.  But 
the  annual  gross  produce  would  determine  the  demand  for 
commodities,  and  the  demand  for  commodities,  according  to 
Mr.  Longe,  determines  the  quantity  of  wealth  spent  in  the 
wages  of  labor.  From  which  several  positions  the  conclusion 
follows  that  the  Wages-fund  of  Great  Britain  stands  to  that  of 
the  United  States  in  the  same  proportion  as  the  population  of 
the  former  country  to  the  population  of  the  latter.  Now,  tak- 
ing this  to  be  so,  and  assuming  further  that  the  proportion  of 
the  population  working  for  hire  is  the  same  in  both  countries, 
then  the  average  rate  of  wages  would  for  both  countries  be  the 
same.  In  point  of  fact,  the  working  population  constitutes  a 
smaller  fraction  of  the  entire  population  in  Great  Britain  than 
in  the  United  States :  it  would,  therefore,  according  to  this 
view,  bear  a  less  proportion  to  the  Wages -fund  here  than 
there.  In  other  words,  we  are  led  by  "  the  demand  for  com- 
modities" theory,  applied  to  the  results  ascertained  by  English 
and  American  statisticians,  to  this  singular  conclusion,  that  the 
rate  of  wages  in  Great  Britain  should  be  on  an  average  higher 
than  in  the  United  States ! 

I  have  taken  for  comparison  Great  Britain  and  the  United 

*  Wells's  Report,  1869,  p.  13. 


THE  DEMAND  FOR  COMMODITIES.  167 

States,  because  the  requisite  data  were  here  easily  obtainable ; 
but  any  one  who  has  followed  the  foregoing  argument  will 
perceive  that,  had  the  comparison  been  made  between  Great 
Britain  and  some  still  more  recently  settled  country — for  ex- 
ample, some  of  the  Western  States  of  North  America,  or  one 
of  our  own  Australian  colonies  —  the  redudio  ad  absiirdum 
would  have  been  3'et  more  glaring.  In  effect,  statistical  de- 
tails in  such  a  comparison  are  superfluous.  The  broad  facts 
of  the  case  are  such  as  can  not  be  missed.  It  is  evident  at  a 
glance  that  in  such  countries  as  our  Australian  colonies,  or  as 
Illinois  or  California,  the  amount  of  the  entire  annual  produc- 
tion appropriated  to  the  laboring  population  bears  a  far  larger 
proportion  to  the  whole  than  in  old  countries  like  Great  Brit- 
ain or  France;  that  is  to  say,  the  Wages-fund  in  those  parts 
of  the  world  bears  a  larger  proportion  to  the  demand  for  com- 
modities than  in  Western  Europe.  The  demand  for  commod- 
ities, therefore,  does  not  determine  the  Wages-fund.  Obser- 
vation, moreover,  of  the  course  of  industrial  development  in 
such  countries  exhibits  this  fact,  that,  while  with  the  progress 
of  society  the  amount  of  wealth  which  goes  to  support  hired 
labor  pretty  constantl}^  increases,  the  proportion  which  this 
bears  to  the  total  produce  of  industry  nearly  as  constantly  de- 
clines— growing  smaller  as  the  realization  of  fortunes  enables 
a  larger  proportion  of  the  people  to  retire  from  active  work, 
and  as  capital  assumes  more  extensively  a  fixed  form.  In  a 
word,  the  most  prominent  features  in  the  industrial  economy 
of  new,  old,  and  advancing  countries  absolutely  precludes  the 
supposition  that  the  demand  for  commodities  has  any  such 
connection  with  the  interests  of  the  laboring  population  as  the 
doctrine  I  am  now  considering  assumes. 

§  8.  So  far  as  to  Mr.  Longe's  theory  of  Wages.  I  proceed 
now  to  state  the  doctrine  of  the  Wages-fund,  as  at  least  I  my- 
self understand  it. 


168  THE  BATE   OF   WAGES. 

It  will  be  remembered  that  in  the  enunciation  which  I  quoted 
from  Mr.  Mill  of  the  wages  problem,  the  Wages-fund  is  stated 
to  consist  of  two  distinct  parts — one,  the  largest  and  by  much 
the  most  important,  constituting  a  portion  of  the  general  cap- 
ital of  the  country ;  while  the  other  is  derived  from  that  part 
of  the  nation's  wealth  which  goes  to  support  unproductive  la- 
bor, of  which  Mr.  Mill  gives  as  an  example  the  wages  of  sol- 
diers and  domestic  servants.  In  proceeding  to  deal  with  the 
wages  question,  it  will  be  convenient  to  omit  for  a  time  all 
consideration  of  the  latter  part:  this  will  be  more  easily  dealt 
with  when  we  have  ascertained  the  causes  which  govern  the 
main  phenomenon. 

Kestrictiug  our  view  then  for  the  present  to  tbat  portion  of 
the  general  Wages-fund  which  goes  to  support  productive  la- 
bor, we  have,  in  the  first  place,  to  observe  that  the  hiring  of 
labor  for  productive  purposes  is  an  incident  of  the  investment 
of  capital.  A  capitalist  engages  and  pays  a  workman  from 
precisely  the  same  motives  which  lead  him  to  purchase  raw 
material,  a  factory,  or  a  machine.  In  searching,  therefore,  for 
the  causes  which  govern  the  amount  of  wealth  spent  in  the 
hiring  of  labor,  we  must  advert  to  the  considerations  whicli 
weigh  with  men  in  devoting  their  means  to  productive  invest- 
ment. Why,  for  example,  does  A.  B.  employ  his  wealth  in 
productive  operations?  And  why  does  he  emplo}^  so  much 
and  no  more  in  productive  operations?  An  adequate  answer 
to  these  questions  will  carry  us  some  way  toward  the  goal  we 
have  in  view. 

It  seems  to  me  that  the  proper  answer  is  as  follows:  A.  B. 
invests  his  wealth  productively  in  order  to  obtain  a  profit  on 
the  portion  of  his  means  so  employed;  and  he  invests  so  much 
and  no  more,  because,  his  total  means  being  what  they  are,  and 
regard  being  had  on  the  one  hand  to  his  private  requirements 
and  taste  for  indulgence,  on  the  other  to  his  desire  to  augment 
his  means,  coupled  with  the  opportunities  afforded  him  of  do- 


CAUSES  OF  INVESTMENT.  W.) 

ing  so  by  making  profit,  this  is  the  amount  which  it  is  suit- 
able to  his  disposition,  in  the  circumstances  in  which  he  is 
placed,  so  to  invest.  In  other  words,  we  find  the  amount  of 
A.  B.'s  investment  determined  by  the  following  circumstances: 
First,  the  amount  of  his  total  means ;  secondly,  his  character 
and  disposition  as  affected  by  the  temptation  to  immediate  en- 
joyment on  the  one  hand,  and  by  the  prospect  of  future  ag- 
grandizement on  the  other ;  thirdly,  the  opportunities  of  mak- 
ing profit.  Alter  any  of  these  conditions — his  total  means,  his 
character,  or  his  opportunities  of  making  profit,  and  the  effect 
will  be  an  alteration  in  the  amount  of  his  investment.  Increase 
his  means,  and,  other  things  being  the  same,  he  will  invest  more 
largely :  again,  increase  the  prospect  of  profit,  and,  other  things 
being  the  same,  he  will  invest  more  largely  :  lastly,  increase  the 
strength  of  the  accumulative  principle  in  his  character  in  rela- 
tion to  the  taste  for  immediate  enjoyment,  and  once  more,  other 
things  being  the  same,  he  will  invest  more  largely  :  on  the  other 
hand,  a  change  in  any  of  these  conditions  in  the  opposite  direc- 
tion would  lead  to  his  investment  being  correspondingly  con- 
tracted. 

Applying  these  considerations  to  the  case  of  a  community, 
it  seems  to  me  that  we  are  justified  in  laying  down  the  follow- 
ing proposition:  That,  the  amount  of  wealth  in  a  country  be- 
ing given,  the  proportion  of  this  wealth  which  shall  be  invest- 
ed in  industrial  operations  with  a  view  to  profit  will  depend, 
first,  upon  the  strength  of  those  qualities  in  the  average  char- 
acter of  its  inhabitants  which  lead  to  productive  investment — 
what  Mr.  ^lill  calls  "  the  effective  desire  of  accumulation  ;"  and 
secondly,  on  the  opjwrtunities  of  industrial  investment  open  to 
the  community  offering  a  rate  of  profit  sufficient  to  call  this 
principle  into  activity — in  a  word,  on  "the  extent  of  the  field 
for  investment." 

Such  being  the  conditions  determining  the  investment  of 
capital,  it  is  plain  that,  if  all  capital  consisted  in  wages,  or  if 


170  THE  RATE   OF   WAGES. 

wages  bore  always  the  same  proportion  to  a  given  quantity  of 
capital,  the  problem  with  which  we  are  immediately  concerned 
would  here  be  solved ;  and  we  might  refer  the  phenomenon  in 
question — we  may  describe  it  as  we  please,  the  extent  of  the 
demand  for  labor  or  the  amount  of  the  Wages-fund — simply 
and  directly  to  the  conditions  which  have  just  been  stated,  viz., 
in  a  given  state  of  the  national  wealth,  to  the  strength  of  the 
effective  desire  for  accumulation,  taken  in  connection  with  the 
extent  of  the  field  for  investment.  In  point  of  fact,  however, 
wages  constitute  but  a  portion  of  capital,  and,  what  greatly 
complicates  the  inquiry,  this  portion  bears  no  constant  relation 
to  the  aofo-reo-ate  amount.  It  therefore  still  remains  for  us  to 
determine  the  circumstances  on  which  depends  the  distribution 
of  capital  between  wages  and  the  other  elements  of  which  cap- 
ital consists. 

Those  other  elements  may  be  summed  up  under  the  heads 
of  "  Fixed  Capital "  and  "  Eaw  Material."  Fixed  Capital,  Eaw 
Material,  and  Wages-fund,  therefore,  form  the  three  constitu- 
ents of  Capital,  and  the  problem  to  be  solved  is.  What  are  the 
causes  which,  in  a  given  field  of  industry,  determine  the  pro- 
portion in  which  these  three  constituents  combine? 

Let  us  again  suppose  an  individual  A,  B.  contemplating  in- 
vestment ;  he  has  decided  how  much  of  his  whole  means  he 
intends  to  employ  in  productive  operations,  but,  this  point  hav- 
ing been  settled,  he  has  yet  to  consider  in  what  proportions  the 
amount  shall  be  divided  between  Fixed  Capital,  Eaw  Materi- 
al, and  Wages.  What  is  to  prescribe  the  respective  quotas? 
Manifestly,  in  the  first  place,  the  nature  of  the  industry  in 
which  he  proposes  to  embark  his  capital.  Suppose,  for  exam- 
ple, his  purpose  is  to  engage  in  cotton  or  woolen  manufacture,  a 
very  large  proportion  of  his  whole  capital  will  assume  the  form 
of  buildings,  machinery,  and  raw  wool  or  cotton  ;  that  is  to 
say,  of  fixed  capital  and  raw  material,  which  would  leave  a 
correspondingly  small  proportion  available  for  the  payment  of 


ELEMENTS  OF  CAPITAL.  171 

wages.  On  the  other  hand,  if,  with  the  same  capital  to  invest, 
he  had  selected  agriculture  as  the  field,  for  its  employment,  the 
bulk  of  his  capital  would  take  the  form  of  wages,  and  fixed 
capital  and  raw  material  would  assume  a  relatively  unimpor- 
tant place  in  his  outlay.  It  is  thus  evident  that  the  nature  of 
the  industry  selected  for  investment  must  go  a  long  way  in  de- 
termining the  proportions  in  which  the  capital  shall  be  distrib- 
uted among  the  several  instruments  of  production,  and,  there- 
fore, must  go  a  long  way  in  determining  the  proportion  which 
the  wages  element  in  that  particular  capital  shall  bear  to  its 
whole  amount.  Now  the  considerations  which  weigh  with  an 
individual  capitalist  are  those  which  weigh  with  a  community 
of  capitalists ;  and  we  are  therefore  justified  in  concluding  that 
the  main  circumstance  governing  the  proportion  which  the 
Wages-fund  shall  bear  to  the  general  capital  of  a  nation  is  the 
nature  of  the  national  industries. 

We  are  justified  in  concluding  that  this  is  the  main  circum- 
stance; but  a  close  examination  will  show  that  other  circum- 
stances also  enter  into  the  conditions  which  determine  the  final 
result.  What  the  nature  of  the  national  industries  really  de- 
termines is  the  proportion  in  which  labor  shall  be  combined 
with  the  other  instruments  of  production  —  fixed  capital  and 
raw  material — in  the  general  industry  of  a  country ;  but  what 
we  want  to  know  is  the  place  which  tvages  shall  hold  in  this 
combination.  Now  the  consideration  of  a  simple  example  will 
show  that,  the  proportion  of  labor  to  the  other  instruments  of 
production  being  given,  the  proportion  which  wages  shall  bear 
to  the  total  capital  may  vary. 

Let  us  suppose  a  capitalist  starting  with  £10,000.  He  finds 
that  with  £5000  he  can  buy  fixed  capital  and  raw  material 
which  will  give  full  employment  to  100  competent  workmen ; 
and  if  we  suppose  the  rate  of  wages  for  these  workmen  to  aver- 
age £50  a  year,  the  payment  of  their  wages  at  this  rate  would 
absorb  the  rest  of  his  capital,  viz.,  £5000.     Ilis  entire  capital 


172  THE  BATE   OF   WAGES. 

would  thus  be  divided  into  £5000  for  fixed  capital  and  raw 
material,  and  £5000  for  wages.  But  now  suppose  the  current 
rate  of  wages  for  such  labor  as  he  required  to  have  been  £40 
instead  of  £50  a  year,  he  would  have  been  able  to  procure  the 
100  workmen  which  his  fixed  capital  and  raw  material  re- 
quired for  £4000:  £5000  having  as  before  been  invested  in 
fixed  capital  and  raw  material,  he  would  thus  find  himself  with 
£1000  of  capital  still  disposable.  This  we  may  suppose  he 
would  invest  in  the  same  business,  and  it  would  accordingly 
be  necessary  to  bring  together  the  instruments  of  production 
purchasable  for  £1000  in  the  same  proportions  as  before — that 
is  to  say,  he  would  have  to  distribute  the  £1000  nearly  as  fol- 
lows :  Fixed  capital  and  raw  material  (let  us  say  for  the  sake 
of  round  numbers)  £550 ;  wages  £450.  His  whole  capital  will 
now  be  divided  thus: 

Fixed  capital  and  raw  material £5,550 

Wages  (110  men  at  £40) 4,450 

Total  capital £10,000 

The  proportion  between  labor,  fixed  capital,  and  raw  ma- 
terial would  here  be  the  same  as  before,  but  whereas  in  the 
first  case  the  Wages- fund  represented  50  per  cent,  of  his  whole 
capital,  it  now  represents  but  44  per  cent.  It  is  of  course  evi- 
dent that,  had  I  made  the  opposite  supposition,  and  taken  the 
current  rate  of  wages  at  £60  instead  of  £40,  it  would  have 
been  necessary,  in  order  to  maintain  the  due  proportion  be- 
tween labor  and  the  other  productive  instruments,  that  the 
wages  element  should  have  been  increased  at  the  expense  of 
fixed  capital  and  raw  material.  The  distribution  of  the  total 
capital  would  then  have  stood  nearly  thus: 

Fixed  Ciijiital  and  raw  material £4,550 

Wages  of  no  men  at  £G0  (nearly) 5,450 

Total  capital £10,000 


•  ELEMENTS  OF  CAPITAL.  173 

In  other  words,  the  Wages-fmid  would  now  constitute  54  per 
cent,  of  the  total  investment. 

These  examples  show  that  the  nature  of  the  national  indus- 
tries do  not  determine  absolutely  the  distribution  of  the  na- 
tional capital  among  the  three  leading  instruments  of  produc- 
tion, but  that  the  result  is  liable  to  be  modified  by  the  rate  of 
wages  which  happens  to  be  current.  Now,  so  far  as  this  is  the 
case,  it  will  perhaps  strike  the  reader  that  our  reasoning  has 
conducted  us  into  a  vicious  circle,  inasmuch  as,  while  seeking 
a  solution  of  the  rate  of  wages  in  the  causes  determining  the 
Wages-fund,  we  have  been  suddenly  confronted  with  the  phe- 
nomenon itself  as  one  of  those  causes.  A  little  reflection,  how- 
ever, will  show  that  the  circle  is  apparent  merely,  and  that  the 
grounds  of  our  argument  are  really  independent  and  distinct. 
For,  whatever  be  the  causes  which  determine  the  Wages-fund, 
the  amount  of  that  fund  being  so  determined,  the  rate  of  wages 
is  merely  the  industrial  outcome,  and  I  might  even  say,  the 
concrete  expression,  of  the  supply  of  labor.  The  modifying 
circumstance,  therefore,  in  the  case,  though  indicated  by  the 
rate  of  wages,  is  really  the  supply  of  labor ;  and  our  analysis 
accordingly  issues  in  the  following  conditions  as  the  determin- 
ing causes  of  the  Wages-fund,  viz.:  the  total  capital  of  the 
country  (determined  in  the  manner  already  explained) ;  the 
nature  of  the  national  industries;  and  the  supply  of  labor — 
facts  at  once  distinct,  and  entirely  independent  of  the  subject 
of  our  investigation. 

It  would  seem,  then,  that  the  amount  of  the  Wages-fund 
(which  the  reader  will  be  careful  to  distinguish  from  the  rate 
of  wages)  is  to  some  extent  affected  by  the  number  of  compe- 
tent laborers  offering  their  services,  wherever  those  laborers 
are  employed  in  conjunction  with  fixed  capital  and  raw  ma- 
terial. Now  it  may  be  worth  while  to  point  out  the  manner 
in  which  this  influence  is  exerted.  Eeverting  to  our  previous 
illustrations,  it  appears  that,  other  things  being  the  same,  a  rise 


174  THE  RATE   OF   WAGES. 

in  the  current  rate  of  wages  issues  in  an  expansion  of  the 
Wages-fund,  and,  contrariwise,  a  full  in  the  current  rate  in  its 
contraction.  But,  the  rate  of  wages,  other  things  being  the 
same,  varying  inversely  with  the  supply  of  labor,  this  is  equiva- 
lent to  saying  that  the  Wages-fund  expands  as  the  supply  of 
labor  contracts,  and  contracts  as  the  supply  of  labor  expands. 
An  unexpected  consequence,  not,  so  far  as  I  know,  before  ad- 
verted to,  results  from  this  play  of  economic  forces,  namel}^, 
that  an  increase  or  diminution  in  the  supply  of  labor,  where  it 
is  of  a  kind  to  be  employed  in  conjunction  with  fixed  capital 
and  raw  material,  acts  upon  the  rate  of  wages  with  a  force 
more  than  'proportional  to  the  increase  or  diminution  in  the  sup- 
ply ;  for  it  tells  at  the  same  time  upon  both  the  factors  on 
which  the  result  depends,  modifying  them  in  opposite  direc- 
tions— the  fund  undergoing  diminution  as  the  number  of  those 
who  are  to  share  it  is  increased ;  or,  on  the  other  hand,  ex- 
panding as  the  sharers  become  fewer.  This  occurs,  I  say, 
where  labor  is  of  a  kind  to  be  emploj^ed  in  conjunction  with 
fixed  capital  and  raw  material ;  and,  it  may  be  added,  that  the 
effect  would  only  assume  sensible  dimensions  where  those 
agencies  constituted  a  substantial  proportion  of  the  whole  capi- 
tal invested.  Indeed  it  would  be  a  mistake  to  regard  this  par- 
ticular condition — the  supply  of  labor  considered  as  a  cause 
affecting,  not  the  rate  of  wages,  but  the  aggregate  Wages-fund 
— as  under  any  circumstances  more  than  a  subordinate  and 
modifying,  influence  in  the  case.  The  point  is  one  of  theoretic 
rather  than  of  practical  importance;  and,  in  considering  the 
variations  of  the  Wages-fund,  it  will  rarely  be  necessary  to  take 
account  of  more  than  the  two  main  determining  conditions  of 
that  phenomenon — the  growth  or  decline  of  capital,  and  the 
nature  of  the  prevailing  industries. 

§  9.  It  appears,  then,  that  the  aggregate  amount  of  wealth 
appropriated  to  the  laboring  population  in  any  country  varies, 


GROWTH  OF  THE   WAGES-FUND.  175 

not  simply  with  the  progress  of  the  national  wealth,  nor  yet 
with  the  progress  of  the  national  capital,  but  with  this  latter 
circLimstance  taken  in  connection  with  the  character  of  the  na- 
tional industries,  the  result  being  also,  within  certain  narrow 
limits,  modified  by  the  supply  of  labor.  In  other  words,  it  ap- 
pears that  the  same  amount  of  capital  will  yield  under  different 
circumstances  AVages- funds  of  different  dimensions,  and  will 
consequently  be  capable  of  supporting  populations  of  different 
magnitudes.  This  position  finds  its  illustration  and  verification 
in  the  industrial  phenomena  of  different  countries.  For  ex- 
ample, it  is  obvious  at  a  glance  tliat  a  given  amount  of  capital 
invested  in  the  Western  States  of  North  America  supports  a 
larger  laboring  population  than  the  same  amount  invested  in 
the  New  England  States ;  and  the  reason  is  plain :  the  former 
States  are  more  extensively  agricultural  than  the  latter,  and 
consequently  employ  fixed  capital  and  raw  material  less  ex- 
tensively in  their  staple  industries;  it  follows  of  course  that 
the  proportion  of  the  total  investment  applicable  to  the  pay- 
ment of  wages  is  correspondingly  greater  in  those  States. 
Again,  a  comparison  of  an  average  investment  in  the  United 
States  —  it  matters  not  in  what  part  of  them — and  in  Great 
Britain  would  reveal  analogous  differences.  Fixed  capital  be- 
ing more  largely  employed  in  the  industries  of  Great  Britain,  a 
given  amount  of  capital  invested  in  those  industries  would 
yield  a  smaller  Wages-fund  than  the  same  capital  invested  in 
the  United  States,  and  consequently  would  support — allowance 
made  for  the  different  rates  of  wages  in  the  two  countries — a 
smaller  laboring  population.  Similarly,  if,  instead  of  compar- 
ing different  countries,  the  comparison  were  made  between  dif- 
ferent epochs,  we  should  still  find  the  power  of  capital  to  sup- 
port labor  varying  with  the  changes  in  the  character  of  the  in- 
dustries in  which  it  is  employed.  And,  in  connection  with 
this,  we  may  notice  what  amounts  to  an  economic  derivative 
law  in  the  industrial  development  of  progressive  communities. 


176  THE  RATE    OF   WAGES. 

The  modifications  which  occur  in  the  distribution  of  capital 
among  its  several  departments  as  nations  advance  are  by  no 
means  fortuitous,  but  follow  on  the  whole  a  well-defined  course, 
and  move  toward  a  determined  goal.  In  effect,  what  we  find 
is,  a  constant  growth  of  the  national  capital,  accompanied  with 
a  nearly  equally  constant  decline  in  the  proportion  of  this  cap- 
ital which  goes  to  support  productive  labor.  This  is  the  inev- 
itable consequence  of  the  progress  of  the  industrial  arts,  the 
efiect  of  which  is  to  cause  a  steady  substitution  of  the  agencies 
of  inanimate  nature  for  the  labor  of  man.  In  making  this 
remark  it  is  perhaps  superfluous  to  add  that  it  is  not  to  be 
inferred  from  the  circumstance  stated  that  the  progress  of 
those  arts  is  unfiivorable  to  the  interests  of  labor.  Even  on 
the  lowest  and  most  materialistic  view  of  the  interests  of  la- 
bor the  reverse  is  the  fact;  for  what  industrial  progress  under 
the  influence  of  the  advancing  arts  and  sciences  effects  is  a 
diminution,  not  in  the  absolute  amount  of  the  Wages-fund,  but 
only  in  the  2y^'02Jortion  which  it  bears  to  the  total  capital  of  a 
country  —  a  diminution  which  is  perfectly  compatible  with  a 
steadily  progressive  increase  of  the  fund.  One  has  only  in- 
deed to  consider  what  the  Wages-fund  of  such  a  country  as 
Great  Britain  has  grown  to  under  a  rerjime  of  advancing  indus- 
trial art,  and  reflect  on  what  it  would  probably  now  have  been 
had  that  progress  been  arrested  a  century  ago,  to  perceive  the 
utter  groundlessness  of  the  notion  that  industrial  art  can,  in  the 
long  run,  be  antagonistic  to  labor.  Not  the  less,  however,  is  it 
indispensable,  if  we  would  understand  the  most  salient  facts  of 
modern  industrial  life,  to  keep  constantly  in  view  the  tendency 
of  the  Wages-fund,  with  the  progress  of  wealth  and  art,  to  lag- 
behind  the  advances  of  the  other  factors  of  the  national  capi- 
tal.*   The  fact  is  one  of  ver}^  great  significance,  and  highly  de- 

*  These  remarks  receive  a  practical  illustration  from  tlie  important  and  suggest- 
ive article  by  Professor  Tawcett  in  tlie  Fortnightly  Review  (January,  1874 J,  in 


SOCIAL  CONSEQUENCES.  177 

serving  the  consideration  of  those  who  speculate  on  social  sub- 
jects. For  it  involves  this  double  consequence  bearing  on  the 
laws  of  social  growth — a  tendency  toward  a  relative  increase 
of  the  classes  not  living  by  hired  labor  as  compared  with  those 
who  do :  and  again,  a  tendency  toward  increased  inequality  in 
the  distribution  of  wealth.*  I  say  it  involves  these  conse- 
quences as  tendencies;  and  I  may  add,  that  up  to  the  present 
time  those  tendencies  have  in  general  been  very  fully  realized  in 
the  actual  experience  of  the  world,  and  in  an  eminent  degree 
in  the  experience  of  Great  Britain.  They  exist,  however,  as 
tendencies  only,  and  may,  like  other  tendencies  or  laws  of  na- 
ture, be  counteracted  through  the  influence  of  tendencies  of  an 
opposite  kind ;  in  a  word,  the  balance  may  be  redressed  by 
suitable  expedients.  Though  the  fund  for  the  remuneration 
of  mere  labor,  whether  skilled  or  unskilled,  must,  so  long  as 
industry  is  progressive,  ever  bear  a  constantly  diminishing  pro- 
portion alike  to  the  growing  wealth  and  growing  capital,  there 
is  nothing  in  the  nature  of  things  which  restricts  the  laboring 
population  to  this  fund  for  their  support.  In  return,  indeed, 
for  their  mere  labor,  it  is  to  this  that  they  must  look  for  their 
sole  reward;  but  they  may  help  production  otherwise  than  by 
their  labor:  they  ma}'-  save,  and  thus  become  themselves  the 
owners  of  capital,  and  profits  may  thus  be  brought  to  aid  the 

which  he  cnlls  attention  to  the  slight  increase  which  has  occurred  in  the  rate  of 
wages  in  Great  Britain  contemporaneously  with  the  large  additions  recently  made 
to  our  national  wealth. 

*  This  latter  residt  can  not  indeed  be  said  to  be  necessary  ;  since  it  is  conceivable 
that  laborers  by  limiting  tlieir  nunibers  might  keep  tlie  rate  of  their  remuneration  on 
a  level  with  the  growing  incomes  of  other  classes.  To  do  this,  however,  two  con- 
ditions would  have  to  be  fulfilled :  the  productiveness  of  industry  would  have  to 
increase  in  a  degree  sufficient  to  permit  of  this  high  rate  of  remuneration  consist- 
ently with  yielding  also  a  rate  of  profit  high  enough  to  attract  capital  toward  in- 
vestment ;  and  secondly,  the  result  would  imply  such  a  degree  of  self-control  on 
the  part  of  the  laboring  population  as,  I  fear,  experience  gives  us  no  warrant  for 
expecting. 

12 


178  THE  BATE   OF   WAGES. 

Wages-fund.  I  merely  note  this  point  at  present  as  bearing 
upon  the  controversy  respecting  the  future  of  the  laboring 
classes,  reserving  the  full  consideration  of  the  latter  question 
for  another  place.  There  are  those  who  regard  it  as  a  law  of 
industrial  development  that  capital  should  ever  become  more 
and  more  aggregated  in  a  few  hands,  and  that,  as  a  conse- 
quence of  this,  the  position  of  the  laborer  in  the  future  must 
remain  substantially  what  it  is  at  present  in  the  more  advanced 
industrial  countries — that  of  a  recipient  of  wages  merely.  I 
do  not  pretend  here  to  pronounce  upon  this  question — the  eco- 
nomic data  for  its  determination  have  not  yet  been  fully 
worked  out ;  but  I  am  justified  even  here  in  asserting  this 
much,  that  the  permanent  maintenance  of  a  regime  such  as  is 
contemplated,  co-existing  with  a  progressive  industry,  can  only 
issue  in  one  result — a  constant  exaggeration  of  those  features 
already  beginning  to  mark  so  unpleasantly  the  aspect  of  our 
social  state — namely,  a  harsh  separation  of  classes,  combined 
with  those  glaring  inequalities  in  the  distribution  of  wealth 
which  most  people  will  agree  are  among  the  chief  elements  of 
our  social  instability. 

§  10.  I  remarked  just  now,  that  under  a  progressive  state 
of  industry,  though  the  proportion  of  the  Wages-fund  to  the 
whole  capital  of  a  country  diminishes,  the  positive  amount  of 
the  fund  for  the  most  part  undergoes  increase.  It  must  be 
confessed,  however,  that  while  this  represents  the  ordinary 
rule,  there  is  nothing  strictly  necessary  in  the  relation  of  the 
phenomena  thus  presented ;  and  that  instances  do  occur,  and 
sometimes  on  a  large  scale,  in  which  the  progress  of  wealth 
and  industry  is  accompanied  with  a  positive  contraction  of  the 
Wages-fund.  Such  a  result  happens  whenever  that  process 
takes  place  which  is  described  by  economists  as  a  conversion 
of  circulating  capital  into  fixed. 

As  Mr.  Mill  has  remarked,  the  proceeding  in  question  is  not 


INDUSTRIAL  CRISES.  179 

one  which  in  practice  is  frequently  resorted  to;  the  introduc- 
tion and  extension  of  fixed  capital  being,  as  a  general  rule,  ef- 
fected through  the  agency  of  fresh  savings  rather  than  by  with- 
drawal from  the  support  of  labor  of  funds  already  thus  employ- 
ed. But  it  is  beyond  question  that  such  conversions  of  circu- 
lating into  fixed  capital  do  sometimes  occur;  and,  in  this  event, 
it  is  not  less  certain  that  the  Wages-fund  must,  at  all  events  for 
a  time,  be  curtailed.  For  the  most  part,  however,  it  happens 
that  movements  'of  this  kind  are  on  a  limited  scale,  and,  the  re- 
sulting arrangements  always  issuing  in  increased  efficienc}''  of 
production  (for  this  is  the  motive  for  adopting  them),  the  gaps 
made  in  the  Wages-fund  are  quickly  filled  up ;  so  that  the  con- 
sequences which  ensue,  though  perhaps  serious  enough,  are 
rarely  of  large  dimensions.  I  say  this  is  what  usually  happens 
when  circulating  capital  is  converted  into  fixed ;  but  there  are 
times  w^hen  the  process  is  conducted  on  something  like  a  na- 
tional scale,  and  then  it  may  be  productive  of  even  disastrous 
results.  An  occasion  of  this  kind,  for  example,  occurred  in  the 
industrial  history  of  England  during  the  sixteenth  century, 
when  the  exchange  of  a  very  rude  and  primitive  agriculture 
for  one  that  might  by  comparison  be  called  scientific,  and  more 
particularl}'  an  extensive  conversion  of  tillage-lands  to  pasture, 
under  the  influence  of  causes  then  affecting  her  general  trade, 
issued  in  the  remarkable  phenomenon  of  a  rapidly  growing 
national  capital,  with  improved  industrial  processes  and  ex- 
tending trade,  accompanied  by  a  sudden  and  portentous  de- 
velopment of  pauperism.  No  doubt  the  recuperative  power 
of  progressive  industry  told  in  the  long  run ;  and  perhaps  be- 
fore the  centur}''  was  over,  or  the  new  Poor  Law  had  well  come 
into  operation,  the  encroachment  made  on  the  laborers'  division 
of  the  national  w-ealth  had  been  more  than  repaid :  but  it  is 
nevertheless  true  that  the  event  amounted  to  a  crisis  in  the 
national  industry,  and  was,  for  a  large  portion  of  the  people, 
fraujiht  with  disaster  and  ruin.     Something  of' the  same  kind 


180  THE  BATE   OF   WAGES. 

has  been  in  progress  in  our  own  day  in  Ireland.  A  protective 
Corn  Law,  combined  with  the  demoralization  of  the  people 
from  political  and  social  causes,  had  generated  an  industrial 
system  which  could  not  be  permanently  sustained.  Under  the 
combined  influence  of  free  trade  and  the  potato  disease  this  sys- 
tem suddenly  collapsed,  and  it  became  necessary  to  pass  from 
a  crude  regime  of  tillage  to  one  in  which  capital  was  extensive- 
ly converted  into  fixed  and  permanent  forms.  The  result  has 
been  the  introduction  of  an  agriculture  suited  to  the  country, 
and  largely  carried  on  by  improved  modern  processes,  and  a 
rapid  increase  in  general  wealth;  but  simultaneously  with  this 
a  sudden  contraction  of  the  Wages-fund,  of  which  the  unequiv- 
ocal evidence  is  found  in  a  population  reduced  in  a  few  years 
from  eio-ht  to  five  and  a  half  millions.  Occurrences  of  this 
kind  place  it  beyond  doubt  that  extensive  changes  in  the 
character  of  the  industry  of  a  country,  even  though  they  be 
all  in  the  direction  of  scientific  progress,  improved  processes, 
and  ultimately  and  even  immediately  augmented  wealth,  may 
nevertheless  effect  a  reduction  in  the  means  for  supporting 
productive  labor,  and  may  for  a  time  act  disastrously  on  its 
interests. 

§  11.  I  have  now  stated  the  doctrine  of  the  Wages-fund  as 
I  understand  it,  in  connection  with  the  general  problem  of  the 
rate  of  wages;  but  before  proceeding  to  trace  its  bearing  upon 
the  relations  of  capital  and  labor,  and  the  various  practical 
questions  arising  therefrom,  it  will  be  convenient  to  pause 
liere  for  a  short  time  in  our  development  of  the  general  theo- 
ry, in  order  to  consider  the  objections  which  have  been  urged 
against  the  doctrine  by  Mr.  Thornton — objections  which,  as  I 
have  already  informed  the  reader,  have  been  powerful  enough 
to  effect  the  conversion  of  Mr.  Mill.  Mr.  Thornton's  argu- 
ment ranges  over  a  considerable  portion  of  his  volume,  but 
the  gist  of  it  will  be  found  in  the  following  passage: 

V 


MB.  THORNTON'S  OBJECTIONS.  181 

"  If  there  really  were  a  national  fund,  the  whole  of  whieli  must  neces- 
sarily be  applied  to  the  payment  of  wages,  that  fund  could  be  no  other 
than  an  aggregate  of  smaller  similar  funds  possessed  by  the  several  indi- 
viduals who  composed  the  employing  part  of  the  nation.  Does,  then, 
any  individual  employer  possess  any  such  fund?  Is  there  any  sjjecific 
portion  of  any  individual's  capital  which  the  owner  must  necessarily  ex- 
])end  upon  labor?  Of  course  every  employer  jwssesses  a  certain  amount 
of  money,  whether  his  own  or  borrowed,  out  of  which  all  his  exjoenses 
must  be  met,  if  met  at  all.  With  so  much  of  this  amount  as  remains  af- 
ter deduction  of  what  he  takes  for  I'amily  and  personal  expenses,  he  car- 
ries on  his  ]>usiness — with  one  portion  of  that  balance  providing  or  keep- 
ing in  rejjair  liuildings  and  machinery,  with  a  second  portion  procuring 
materials,  with  a  third  hiring  labor.  But  is  there  any  law  fixing  the 
amount  of  his  domestic  expenditure,  and  thereby  fixing  likewise  the 
balance  available  for  his  industrial  ojjerations  ?  May  he  not  spend  more 
or  less  on  his  family  and  himself,  according  to  his  fancy — in  the  one  case 
liaving  more,  in  the  other  less,  left  for  the  conduct  of  his  business  ?  And 
of  what  is  left,  does  he  or  can  he  determine  beforehand  how  much  shall 
be  laid  out  on  buildings,  how  mucli  on  materials,  how  much  on  labor  ? 
May  not  liis  outlay  on  repairs  be  unexpectedly  increased  by  fire  or  other 
accident  ?  will  not  his  outlay  on  materials  vary  with  their  dearness  or 
cheapness,  or  with  the  varying  demand  for  the  finished  article  ?  and 
must  not  the  amount  available  for  wages  vary  accordingly  ?  And  even 
though  the  latter  amount  were  exactly  ascertained  beforehand,  even 
though  he  did  know  to  a  farthing  how  much  he  would  be  able  to  spend 
on  labor,  would  he  be  bound  so  to  spend  the  utmost  he  could  aflford  to 
spend  ?  If  he  could  get  as  much  labor  as  he  wanted  at  a  cheap  rate, 
would  he  voluntarily  pay  as  much  for  it  as  he  would  be  compelled  to 
pay  if  it  were  dearer  ?  It  sounds  like  mockery  or  childishness  to  ask 
these  questions,  so  obvious  are  the  only  answers  that  can  possibly  be 
given  to  them ;  yet  it  is  only  on  the  assumption  that  directly  opposite 
answers  must  be  given  that  the  Wages-fund  can  for  one  moment  stand. 
For  if  in  the  case  of  individual  employers  there  be  no  Wages-funds— no 
definite  or  definable  portions  of  their  capitals  which,  and  neither  more 
nor  less  than  which,  they  must  severally  apply  to  the  hiring  of  labor- 
clearly  there  can  be  no  aggregate  of  such  funds,  clearly  there  can  be  no 
national  Wages-fund.  And  be  it  oljserved,  fixity  or  definiteness  is  the 
very  essence  of  the  supposed  Wages-fund.  Xo  one  denies  that  some 
amount  or  other  must  within  any  given  period  be  disbursed  in  the  form 


182  THE  BATE   OF   WAGES. 

of  wages.  The  only  question  is,  whether  that  amount  be  determinate 
or  indeterminate.  If  indeterminate,  it  can  not  of  course  be  divided,  and 
might  as  well  not  exist  for  any  power  it  possesses  of  performing  the  sole 
function  of  a  Wages-fund,  that,  viz.,  of  yielding  a  quotient  that  would 
indicate  the  average  rate  of  wages."* 

Mr.  Thornton,  the  reader  will  perceive  from  this  passage, 
does  nt>t  deny  the  existence  of  a  Wages-fund :  he  admits  the 
legitimacy  of  contemplating  in  the  aggregate  those  funds — the 
wasres  of  individual  workmen — of  which  we  know  the  exist- 
ence  in  detail ;  but  he  contends  that  neither  the  particular  sums 
in  detail,  nor  therefore  the  aggregate  which  they  compose,  are 
"  determinate  " — an  expression  under  which  he  includes  at  once 
their  "predetermination"  toward  the  destination  they  after- 
ward receive,  and  their  "  limitation  "  within  their  actual  bounds. 
It  must  at  once  be  conceded  that,  in  the  sense  in  which  (as  ap- 
pears from  this  passage  as  well  as  from  the  whole  tenor  of  his 
argument)  Mr.  Thornton  understands  the  "predetermination" 
and  "limitation"  of  the  Wages-fund,  his  position  is  unassail- 
able. Undoubtedly  "there  is  no  specific  portion  of  any  indi- 
vidual's capital  which  the  owner  must  necessarily  expend  upon 
wages."  "There  is  no  law  fixing  the  amount"  of  any  man's 
"  domestic  expenditure,  and  thereby  fixing  likewise  the  balance 
available  for  industrial  operations."  Nor  is  any  man  "bound 
to  spend,"  in  the  payment  of  labor,  "  the  utmost  he  can  afford 
to  spend."  I  should  have  confidently  asserted,  I  will  not  say 
that  no  econom'ist,  but  that  no  reasonable  being  had  ever  ad- 
vanced the  theory  of  a  Wages-fund  in  this  sense,  if  it  had  not 
been  that  Mr.  Mill  had  accepted  the  reasoning  I  have  quoted 
as  a  refutation  of  that  theor3^f     As  it  is,  I  can  only  say  that 

*  "Labor,  etc.,"  pp.  84,  85. 

t  Mr.  Mill's  acceptanco  of  Mr.  Tliomton's  argument  on  this  point  is  the  more 
pei^plexing  as  he  lias  liimself,  in  more  tliaii  one  ])assajj;e  of  iiis  work,  strenuously 
disclaimed  that  notion  of  an  economic  law  against  which  iMr.  Thornton's  reason- 
ing is  directed,  and,  on  the  other  hand,  asserted  the  view  fur  which  I  contend  in 


MB.  THORNTON'S  OBJECTIONS.  183 

this  is  not  the  sense  in  which  I  have  myself  understood  the 
doctrine  (and  I  first  learned  it  from  Mr,  Mill's  pages) ;  and  fur- 
ther, I  must  add,  that  if  economic  doctrines  in  general  are  to  be 
understood  in  the  sense  here  assigned  to  the  Wages- fund  doc- 
trine— namely,  as  expressing  principles  which  compel  human 
beings  to  the  adoption  of  certain  courses  of  conduct  in  despite 
of  their  own  inclination  and  will,  there  is  not  a  single  one  with- 
in the  rano;e  of  economic  science  that  could  endure  ten  minutes' 
criticism.  The  doctrine,  for  example,  that  the  supply  of  a 
commodity  tends  to  conform  to  the  quantity  demanded  at  the 
normal  price,  is  as  well  established  as  any  principle  of  Political 
Economy.  How  is  it  proved?  By  showing  that,  if  the  supply 
of  the  commodity  falls  short  of  this  quantity,  the  market  price 
will  rise  above  the  normal  price,  profits  on  the  production  will 
be  exceptional  I}''  high,  and,  as  a  consequence,  a  larger  amount 
of  capital  and  labor  will  be  "  determined  "  toward  the  produc- 
tion ;  while  in  the  contrary  case  the  "  determination  "  of  capi- 
tal and  labor  would  be  in  the  opposite  direction.  But  if  by 
"determination"  of  capital  is  to  be  understood  some  force 
which  compels  the  capitalist  irrespective  of  his  own  wishes  and 
views  of  his  own  interest,  the  reasoning  is  manifestly  ground- 
less. Mr.  Thornton  might  say  here,  quite  as  truly  as  in  his 
argument  against  the  Wages-fund,  there  is  no  law,  physical  or 
legal,  there  is  no  moral  principle,  which  compels  any  capitalist 
to  employ  his  capital  in  a  branch  of  production  simply  because 
profits  in  that  branch  are  rising.  Again,  take  the  law  of  rent : 
how  is  that  law  established?  By  some  such  reasoning  as  this, 
namely,  by  showing  that  the  competition  of  farmers  for  land 

the  text:  for  example,  in  the  following:  "Demand  and  supply  are  not  physical 
agencies,  which  thrust  a  given  amount  of  wages  into  a  laborer's  hand  without  the 
participation  of  his  oicn  will  aiid  actions.  The  market  rate  is  not  fixed  for  him 
by  some  self-acting  instrument,  but  is  the  result  of  bargaining  between  human  be- 
ings— of  what  Adam  Smith  calls  '  the  higgling  of  the  market.' "    (Book  v.,  cha]i. 

x.,§r,.) 


184  THE  RATE   OF   WAGES. 

will  ''determine"  to  the  possession  of  landlords  all  that  profit 
upon  land  which  is  in  excess  of  the  ordinary  profits  upon  in- 
dustry ;  while  the  competition  of  other  occupations  with  agri- 
culture will  prevent  the  amount  so  determined  from  rising  be- 
yond the  limits  of  the  exceptional  profit.  But  what  is  to  pre- 
vent Mr.  Thornton  from  interposing  here  the  same  series  of 
objections  he  has  urged  against  the  Wages-fund?  "Rent," 
he  might  exclaim,  "  determined  by  the  law  of  exceptional  prof- 
it! Is  there  any  specific  portion  of  a  farmer's  capital  which 
the  ownier  must  necessarily  expend  upon  rent?  And  who  can 
tell  beforehand  what  the  amount  of  his  exceptional  profit  will 
be?  May  not  his  outlay  on  repairs  be  unexpectedly  increased 
by  flood  or  other  accident?  Will  not  his  outlay  on  materials 
vary  with  their  dearness  or  cheapness,  or  with  the  varying  de- 
mand for  the  produce?  and  must  not  the  amount  available 
for  rent  vary  accordingly  ?  And  even  though  the  amount  of 
exceptional  profit  were  exactly  ascertained  beforehand,  even 
thouo'h  the  farmer  did  know  to  a  farthino-  how  much  he  w^ould 
be  able  to  pay  to  the  landlord,  while  reserving  average  profit 
to  himself,  would  he  be  bound  so  to  spend  the  utmost  he  could 
so  aftbrd  to  spend  ?"  And  so  the  theory  of  rent  would  collapse, 
and  Mr.  Thornton  might  enjoy  an  easy  triumph  over  Ricardo 
and  all  who  have  since  followed  in  his  wake.  In  short,  it  is 
evident  that,  if  this  style  of  reasoning  be  legitimate,  the  whole 
structure  of  economic  doctrine  must  inevitably  go  down. 

What  then  is  the  answer  to  Mr.  Thornton  ?  Why,  I  take 
it,  this:  that  his  reasoning  from  beginning  to  end  proceeds 
upon  a  radically  erroneous  conception  of  the  nature  of  an  eco- 
nomic law  —  of  what  is  meant  by  "predetermination"  and 
"limitation"  in  the  sphere  of  economic  action.  A  "law  "in 
Political  Economy  does  not  mean  either  legal  coercion  or 
physical  compulsion,  or  yet  moral  obligation ;  nor  does  the 
"determination"  expressed  in  an  economic  law  mean  the  nec- 
essary realization  of  certain  results  independently  of  the  human 


MR.  THORNTON'S  OBJECTIONS.  185 

will.  What  an  economic  law  asserts  is,  not  that  men  must  do 
so  and  so  whether  they  like  it  or  not,  but  that  in  given  circum- 
stances they  will  like  to  do  so  and  so ;  that  their  self-interest 
or  other  feelings  will  lead  them  to  this  result.  The  predeter- 
mination in  question  is  of  that  sort  which  leads  a  hungry  man 
to  eat  his  dinner,  or  an  honest  man  to  pay  his  debts,  and  de- 
pends for  its  fulfillment,  not  upon  external  compulsion  of  any 
sort,  but  upon  the  influence  of  certain  inducements  on  the  will, 
our  knowledge  of  which  enables  us  to  say  how  in  given  cir- 
cumstances a  man  will  act.  It  is  in  this  sense  that,  speaking 
for  myself,  I  understand  the  "predetermination"  of  a  certain 
portion  of  the  wealth  of  a  country  to  the  payment  of  wages. 
I  believe  that,  in  the  existing  state  of  the  national  wealth,  the 
character  of  Englishmen  being  what  it  is,  a  certain  prospect  of 
profit  will  "  determine  "  a  certain  proportion  of  this  wealth  to 
productive  investment;  that  the  amount  thus  "determined" 
will  increase  as  the  field  for  investment  is  extended,  and  that 
it  will  not  increase  beyond  what  this  field  can  find  employ- 
ment for  at  that  rate  of  profit  which  satisfies  English  commer- 
cial expectation.  Further,  I  believe  that,  investment  thus  tak- 
ing place,  the  form  which  it  shall  assume  will  be  "determined" 
by  the  nature  of  the  national  industries — "determined,"  not 
under  acts  of  Parliament,  or  in  virtue  of  any  physical  law,  but 
through  the  influence  of  the  investor's  interests;  while  this, 
the  form  of  the  investment,  will  again  "determine"  the  pro- 
portion of  the  whole  capital  which  shall  be  paid  as  wages  to 
laborers.  It  is  in  this  sense  I  say  that  I  understand  the  "pre- 
determination" implied  in  the  Wages-fund  doctrine;  and 
against  the  doctrine  so  understood  I  can  not  find  that  there  is 
any  thing  very  formidable  in  Mr.  Thornton's  criticisms.  They 
are  simply  beside  the  mark  —  at  all  events,  beside  my  mark. 
"  Capitalists  put  aside  a  portion  of  their  means  with  a  de- 
termination that,  whatever  happens,  they  shall  be  spent  in 
wases!" — The  doctrine,  as  I  understand  it,  makes  no  such 


186  TEE  BATE   OF   WAGES. 

assumption ;  nor  am  I,  in  holding  it,  bound  to  maintain  an}- 
such  absurdity.  "  Employers  are  anxious  to  buy  their  labor 
as  cheap  as  they  can,  to  spend  as  little  as  possible  in  wages." 
— No  doubt  they  are  ;  but  while  they  are  anxious  to  get  their 
labor  cheap,  they  are  also  anxious  to  place  certain  amounts  of 
their  wealth  at  profitable  investment ;  and,  to  do  this  in  the 
most  advantageous  way,  a  certain  proportion  of  the  sums  so 
invested  must  go  to  the  pajanent  of  wages. 

I  say  deliberately  ^^must^^  go  to  the  payment  of  wages,  for 
this  is  the  consequence  involved  in  the  doctrine  I  have  endeav- 
ored to  expound.  Assuming  a  certain  field  for  investment, 
and  the  prospect  of  profit  in  this  such  as  to  attract  a  certain 
aggregate  capital,  and  assuming  the  national  industries  to  be 
of  a  certain  kind,  the  proportion  of  this  aggregate  capital  which 
shall  be  invested  in  wages  is  not  a  matter  within  the  discre- 
tion of  capitalists,  always  supposing  they  desire  to  obtain  the 
largest  practical  return  upon  their  outlay.  To  accomplish  this, 
the  instruments  of  production,  labor,  fixed  capital,  and  raw 
material  must  be  brought  together  in  certain  proportions — a 
condition  which  requires,  as  I  have  shown — the  supply  of  la- 
bor being  given — a  distribution  of  the  aggregate  capital  in  cer- 
tain proportions  among  those  instruments.  Supposing,  now, 
capitalists  to  succeed  in  forcing  down  the  rate  of  wages  below 
the  point  at  which,  having  regard  to  the  number  of  the  labor- 
ing population,  the  amount,  which  the  fulfillment  of  this  con- 
dition would  assign  to  the  payment  of  wages,  was  absorbed — 
either  the  capital  thus  withdrawn  from  the  Wages-fund  must 
remain  uninvested  and  therefore  unproductive,  or  if  invested, 
and  not  invested  in  wages,  it  would  take  the  form  of  fixed 
capital  or  raw  material.  But  by  hypothesis  the  fixed  capital 
and  raw  material  were  already  in  due  proportion  to  the  labor 
force,  and  they  would  consequently  now  be  in  excess  of  it. 
A  competition  among  capitalists  for  labor  would  consequently 
ensue:  and  what  could  this  end  in  but  a  restoration  to  the 


ME.  THORNTON'S  OBJECTIONS.  187 

Wages-fund  of  the  amount  withdrawn  from  it?  Mr.  Thorn- 
ton probably  would  tell  me  that  the  amount  saved  from  the 
payment  of  wages  might,  and  probably  would,  be  turned  to 
swell  the  private  expenditure  of  capitalists,  who,  taking  out 
the  results  in  this  form,  would  simply  continue  to  receive 
larger  profits  at  the  expense  of  their  workmen.  No  doubt 
this  is  a  possible  contingency  in  particular  cases,  but,  the  char- 
acter of  the  wealthy  classes  remaining  on  the  whole  what  it  is, 
increased  accumulations  in  other  quarters  would  neutralize  ex- 
ceptional extravagance  in  some ;  and  larger  profits  would  not 
be  less  powerful  than  before  to  attract  increased  investment. 
In  a  word,  my  argument  brings  me  back  to  the  position  from 
which  I  started,  that,  the  aagregate  investment  being  deter- 

7  7  CO        O  O 

mined  by  certain  mental  and  physical  conditions,  and  the  na- 
tional industries  being  such  as  they  are,  there  is  but  one  dis- 
tribution of  the  capital  invested  which  is  consistent  with  the 
greatest  advantage  to  the  investors.  That  distribution  in- 
volves a  certain  proportion  spent  in  the  paj^ment  of  wages,  and 
it  is  to  this  result  that  capitalists,  if  true  to  their  own  interest, 
inust  conform  their  conduct.* 

*  The  notion  that  any  portion  of  the  wealth  of  the  country  should  be  "deter- 
mined "  to  the  payment  of  wages  would  seem  also  to  shock  ]\Ir.  Longe's  sense  of 
economic  propriety  ;  which  is  strange,  seeing  that  his  own  doctrine  tliat  it  is  "the 
demand  for  commodities  which  determiues  the  quantity  of  wealth  spent  in  the 
payment  of  wages"  plainly  involves  this  conscfpience.  He  ])uts  the  case  of  a  cap- 
italist who,  by  taking  advantage  of  the  necessities  of  his  workmen,  effects  a  reduc- 
tion in  their  wages,  and  succeeds  in  withdrawing  so  much,  call  it  £1000,  from  the 
Wages-fimd ;  and  asks  how  is  the  sum,  thus  witlidrawn,  to  be  restored  to  tfie 
fund  ?  On  Mr.  Longe's  principles  the  answer  is  sim])le — "by  being  spent  on  com- 
modities;" for  it  may  be  assumed  that  the  sum  so  withdrawn  will,  in  any  case, 
not  be  hoarded.  "  But,"  urges  Mr.  Longe,  "  it  might  be  spent  on  foreign  wines, 
or  on  a  trip  to  Switzerland  ;"  the  suggestion  of  course  being  that  in  this  case  the 
expenditure  could  do  no  good  to  English  labor.  If  so,  then  we  seem  to  have 
made  a  mistake  in  repealing  our  protective  laws ;  nor  were  protectionists,  after  all, 
so  very  wrong  in  seeking  to  encourage  native  industry  by  compelling  expenditure 
toward  domestic  productions.    May  I  venture  to  remind  Mr.  Longe  that  expendi- 


188  THE  BATE   OF    WAGES. 

So  far  as  to  one  leading  objection  urged  against  the  Wages- 
fund  doctrine.  It  is  further  contended  that  the  doctrine  as- 
sumes the  existence  of  a  limitation  to  the  amount  of  that  fund 
for  which  there  is  no  warrant  in  facts.  As  Mr.  Thornton  puts 
it,  "  may  not  the  capitalist  spend  more  or  less  on  his  family  and 
himself  according  to  his  fancy — in  the  one  case  having  more, 
in  the  other  less,  left  for  the  conduct  of  his  business?"  The 
aspect  of  the  question  here  brought  into  view  involves  consid- 
erations of  so  much  importance  that  it  will  be  best  discussed  in 
a  separate  chapter. 


tiire  on  foreign  wines  and  in  Swiss  travel  must  and  can  only  be  paid  for  by  an  ex- 
port of  British  productions,  and  that  it  therefore  creates  a  demand  for  such  pro- 
ductions, though  more  circuitously,  quite  as  certainly  as  if  it  took  a  more  direct 
form.  The  answer,  therefore,  to  the  case  put  by  Mr.  Longe  is  easy  on  his  own 
principles  ;  and  I  am  disposed  to  flatter  myself  that  the  reader  who  has  gone  with 
me  in  the  foregoing  discussion  will  not  have  much  difficulty  in  replying  to  it  upon 
mine. 


CHAPTER  II. 

DEMAND  FOR  COMMODITIES  — WAGES  AND  PRICES. 

§  1.  I  MUST  here  depart  for  a  space  from  the  main  line  of 
my  argument  in  order  to  work  out  a  side  issue  already  partial- 
ly dealt  with,  over  which  I  think  it  must  be  confessed,  not- 
withstanding some  considerable  discussion  already  bestowed 
upon  it,  no  small  amount  of  obscurity  still  hangs.  I  mean  the 
question  as  to  the  relation  existing  between  the  demand  for 
commodities  and  the  interests  of  those  who  live  by  labor.  We 
have  already  seen  that  this  relation  is  not  what  it  is  commonly 
supposed  to  be:  the  demand  for  commodities  does  not  deter- 
mine the  quantity  of  wealth  spent  in  the  wnges  of  labor.  Still, 
it  is  not  to  be  denied  that  the  agency  in  question  stands  in  in- 
timate relation  with  the  wealth  thus  expended,  or,  as  I  call  it, 
the  Wages-fund ;  and  my  purpose  now  is  to  attempt  some 
more  precise  determination  of  the  character  and  the  extent  of 
the  connection  than  has  yet  been  given  by  writers  on  economic 
science. 

With  a  view  to  this  it  will  be  convenient  to  distinguish  two 
conditions  of  demand  for  commodities:  (1)  Where,  the  aggre- 
gate expenditure  on  commodities  remaining  the  same,  a  change 
takes  place  in  its  direction,  as,  for  example,  when  a  country 
passes  from  a  state  of  peace  to  one  of  war,  or  when  any  con- 
siderable change  occurs  in  the  tastes  or  habits  of  the  people 
leading  to  a  diversion  of  expenditure  from  certain  classes  of 
objects  to  others;  and  (2)  where,  as  the  consequence  of  a  posi- 
tive growth  of  purchasing  power  in  a  community,  the  aggre- 
gate demand  for  commodities  undergoes  increase. 


190  THE  DEMAND  FOB   COMMODITIES. 

§  2.  I.  That  a  change  in  the  mode  in  which  the  general  in- 
come of  a  country  is  spent,  if  occurring  on  a  considerable  scale, 
is  capable  of  affecting  the  condition  of  habor  in  different  branches 
of  industry,  is  extremely  obvious;  nor  can  there  be  much  dif- 
ficulty as  to  the  manner  in  which  the  results  are  brought  about, 
A  change  of  fashion,  for  example,  taking  place,  certain  com- 
modities are  brought  into  increased  demand,  while  the  demand 
for  others  decHnes.  The  productive  and  distributive  arrange- 
ments of  the  country  having  been  made  with  a  view  to  a  dif- 
ferent state  of  the  public  requirements,  the  supply  of  the  for- 
mer articles  will  be  insufficient,  and  they  will  therefore  rise  in 
price ;  while  the  supply  of  the  latter  will  be  in  excess,  and  they 
will  fall.  But,  as  I  have  pointed  out,  the  price  of  the  product 
is  the  fund  from  which  the  remuneration  of  capital  and  labor 
— viewing  production  as  a  continuous  act — is  derived ;  and  this 
fund  has  now  been  increased  in  certain  branches  of  industry 
and  curtailed  in  others.  It  follows  that  capital  or  labor,  or 
both,  will  receive  in  the  former  employments  more,  and  in  the 
latter  less,  than  average  rewards ;  and  this  state  of  remunera- 
tion will  continue  until,  by  increasing  the  supply  of  the  one 
sort  of  products  and  reducing  that  of  the  other,  prices  are  re- 
stored to  their  former  level — a  consummation  which  will  only 
be  accomplished  when  capital  and  labor  in  the  industries  affect- 
ed have  been  re-adjusted  to  meet  the  altered  conditions  of  the 
public  demand.  The  immediate  result  will  thus  be,  as  regards 
such  industries,  a  change  in  relative  wages  or  profits,  or  in 
both.  In  point  of  fact,  as  we  shall  hereafter  see,  the  effect  is 
generally  divided  between  both  branches  of  remuneration,  and 
for  the  present  I  shall  assume  that  this  is  the  case.  Where, 
however,  competition  among  workmen  is  effective,  such  a  change- 
can  not  be  permanent:  it  will  only  last  until  the  labor  force  of 
the  country  has  adapted  itself  to  the  altered  conditions  of  the 
market.  So  soon  as  this  is  accomplished,  prices,  profits,  and 
wages  will  return  to  their  former  condition. 


EFFECT  ON  RELATIVE  WAGES.  191 

This  is  what  will  happen  where  competition  is  really  effect- 
ive. But  we  have  seen  that  competition  in  the  article  of  la- 
bor is  not  effective  throughout  the  entire  field  of  industry  in  a 
country  like  this.  Certain  industrial  circles  or  groups  exist, 
the  workmen  composing  each  of  which,  while  competing  among 
themselves,  are,  from  social  circumstances,  excluded  from  effect- 
ive competition  with  the  workmen  of  different  groups ;  with 
this  result,  that  the  relative  value  of  the  products  of  such  non- 
competing  groups  are  determined,  not  by  cost  of  production, 
but  by  reciprocal  demand.  Now,  where  this  is  the  case,  a 
change  in  the  mode  of  expending  the  general  income  of  a 
community  may,  under  certain  circumstances,  be  attended 
with  more  than  temporary  consequences.  For,  supposing  the 
change  in  expenditure  to  involve  a  transfer  of  demand  from 
the  products  of  one  of  those  non-competing  industrial  groups 
to  those  of  another,  the  result  in  the  first  instance  would  be  the 
same  as  in  other  cases;  namely,  an  advance  in  the  rates  of  re- 
muneration for  laborers  and  capitalists  within  the  group  profit- 
ing by  the  enlarged  demand,  accompanied  by  a  corresponding 
fall  in  the  other  group.  But  this  would  not  be  followed  in  the 
present  instance  by  the  same  consequences  as  in  the  case  in 
which  effective  competition  prevailed.  Capital,  indeed,  would 
still  move  freely  to  the  more  lucrative  occupations;  but  labor 
would  not  follow,  or  would  follow  in  inadequate  proportions; 
and  the  equalization  of  profits  would  be  effected,  not  by  a  re- 
duction of  prices,  but  by  an  advance  of  wages.  To  restore  the 
prices  of  the  commodities  affected  by  the  change  in  demand  to 
their  former  relative  level,  it  would  be  necessary  to  adjust  the 
supplj'  of  these  commodities  to  the  altered  conditions  of  de- 
mand; and  to  do  this  it  w^ould  be  necessary  to  distribute  the 
labor  force  of  the  country  in  conformity  with  the  altered  re- 
quirements. But  this  is  just  what,  under  the  circumstances 
we  are  supposing,  it  is  not  possible  to  do.  The  occurrence, 
therefore,  would  issue  in  an  advance  at  once  in  the  price  of  the 


192  THE  DEMAND  FOR   COMMODITIES. 

products  falling  under  the  enlarged  demand,  and  in  the  wages 
of  the  workmen  engaged  in  their  production,  while  profits, 
after  some  fluctuation,  would  return  to  their  former  state; 
and,  on  the  other  hand,  there  would  be  an  equivalent  decline 
in  prices  and  wages  in  the  branches  of  industry  from  which 
the  demand  had  been  withdrawn,  and  these  results  would  be 
definitive — that  is  to  say,  they  would  continue  until  social  prog- 
ress had  removed  the  barriers  which  interfered  with  industrial 
competition,  or  until  the  altered  condition  of  the  workmen  in 
the  different  industrial  groups  should  have  acted  on  the  growth 
of  population  within  the  groups.  In  this  way,  then,  a  mere 
change  in  the  direction  of  national  expenditure  may  issue  in 
permanent  effects  in  the  relative  remuneration  of  laborers. 

It  need  scarcely  be  remarked  that  in  occurrences  of  this  na- 
ture, whether  the  results  are  temporary  or  permanent,  no  ad- 
dition would  be  made  to  the  aggregate  Wages-fund,  nor  there- 
fore to  the  well-being  of  the  laboring  population  as  a  whole.* 
The  effects  would  be  limited  to  a  mere  transference  of  wealth 
from  certain  groups  of  workmen  to  others,  so  that  the  gains 
would  always  be  compensated  by  corresponding  losses.  The 
former  might  indeed  be  sometimes  concentrated  and  the  latter 
diffused,  and  the  gains  might  in  consequence  be  seen  and  the 
losses  not  seen ;  or  the  contrary  result  might  happen.  But, 
from  the  nature  of  the  case,  there  could  be  no  clear  gain  :  if 
Peter  were  enriched,  there  would  always  be  some  Paul  at 
whose  expense  it  was  done.f 

*  The  tendency  indeed  is  tlie  other  way ;  since  a  portion  of  the  products  of  in- 
dustry having,  in  consequence  of  the  change  in  the  public  tastes  or  requirements, 
been  deprived  of  their  ])0wer  of  satisfying  iiuman  wants,  a  certain  amount  of  pro- 
ductive effort  would  have  been  wasted,  and  consequently  the  aggregate  wealth 
must  for  a  time  have  suffered  diminution.  Tlie  loss,  however,  would  not  necessa- 
rily be  shown  in  the  average  rates  of  wages  or  profits  (mensured  in  money,  which 
I  suppose  constant  in  value),  but  would  be  realized  by  the  public  at  large,  includ- 
ing capitalists  and  laborers,  in  their  capacity  of  consumers. 

+  In  theoretical  strictness,  this  position  needs  qualification.     It  would  only  be 


IN  THE  INTERNATIONAL  SPHERE.  193 

And  what  may  happen  to  a  particular  industrial  group  in 
its  relation  to  other  industrial  groups  in  the  community  of 
which  they  form  parts,  may  happen  equally,  and  through  the 
action  of  precisely  the  same  causes,  to  an  entire  community  in 
its  relation  to  other  communities  in  the  larger  society  of  com- 
mercial nation's.  For,  as  has  been  already  pointed  out,  inde- 
pendent nations  occupy,  as  regards  the  circumstance  of  indus- 
trial competition,  a  position  entirely  analogous  to  that  of  the 
industrial  groups  which  we  have  been  contemplating.  Labor 
passes  from  country  to  country,  indeed,  with  even  greater  diffi- 
culty than  from  the  less  to  the  more  highly  skilled  industries 
within  the  same  country;  and  the  consequence  is  that  changes 
in  the  international  demand  for  commodities  are  even  more 
likely  to  issue  in  permanent  effects  on  the  rates  of  wages 
in  different  countries  than  similar  changes  in  the  domestic 
demand  to  produce  permanent  consequences  in  the  internal 
rates.  Thus  any  circumstance  which  should  turn  any  consid- 
erable portion  of  the  general  purchasing  power  of  commercial 
nations  from  English  toward  French  productions,  or  vice  versa, 
would  have  the  effect  of  enhancing  in  France  and  depreciating 
in  England,  or  vic^  versa,  the  general  value  of  products.     The 


strictly  true,  if  tiie  Wages-fund  bore  alwaj-s  the  same  proportion  to  the  capital 
employed  in  production,  which  is  not  the  fact.  Supposing,  e.  g.,  expenditure 
were  largely  directed  from  clothing  to  food,  and  that  in  consequence  capital  were 
transferred  from  manufactures  to  agriculture,  inasmuch  as  a  given  amount  of  cap- 
ital employed  in  agriculture  will  in  general  contain  a  larger  element  of  "Wages- 
fund  than  the  same  amount  of  capital  employed  in  manufactures  (owing  to  the 
larger  use  of  fixed  capital  in  the  latter  case),  it  follows  that  a  substitution  of  a  de- 
mand for  food  for  a  demand  for  clothes  would  in  this  case  issue  in  an  increase  of 
the  aggregate  Wages-fund;  as  a  substitution  in  the  contrary  sense  -would  have 
the  opposite  effect.  A  change  of  this  kind,  however,  occurring  in  Great  Britain, 
would  not  probably  be  attended  with  any  such  consequences,  because  it  is  not 
probable  that  it  would  lead  to  any  transference  of  capital  to  agriculture.  The  ad- 
ditional food  would  be  obtained  from  foreign  countries  through  an  extension  of 
our  exports. 

13 


194  THE  DEMAND  FOB   COMMODITIES. 

wealth  of  one  country  would  be  increased,  that  of  the  other 
diminished,  and  the  results  just  traced  would  be  realized  on 
an  international  scale.  Here,  however,  as  in  the  former  case, 
although  the  laboring  classes  of  an  entire  community  might 
be  benefited,  yet,  taking  an  international  or  cosmopolitan 
view,  there  would  be  no  clear  gain  for  the  interests  of  labor. 
It  would  be  merely  so  much  withdrawn  from  industrial  well- 
being  in  one  country  in  order  to  be  added  to  the  same  cause 
in  another. 

§  8.  II.  Such  changes  in  the  demand  for  commodities  are 
in  the  nature  of  mere  diversions  of  purchasing  power,  where 
the  aggregate  amount  remains  the  same.  But  the  aggregate 
purchasing  power  of  a  community,  or  of  the  world,  may  ex- 
perience increase,  and,  in  fact,  is  pretty  constantly  increasing; 
and  we  have  now  to  consider  what  may  be  the  effect  on 
the  Wages-fund  of  an  increased  demand  for  commodities  aris- 
ing under  this  state  of  things.  Now  here  it  is  most  impor- 
tant to  observe  that  the  increased  demand  for  commodities 
is  a  mere  incident  in  the  general  conditions  which  the  as- 
sumed case  supposes.  An  increase  in  the  aggregate  demand 
for  commodities,  resting  on  a  larger  aggregate  of  purchas- 
ing power — putting  aside  the  case  of  a  mere  inflation  of  cred- 
it unsustained  by  any  basis  of  real  wealth  —  means  an  in- 
creased production  of  wealth ;  and  implies,  therefore,  a  corre- 
sponding increase  in  the  aggregate  supply  of  commodities. 
Supply  and  Demand,  in  short,  considered  as  aggregates,  are,  as  I 
have  already  more  than  once  observed,  the  reciprocals  of  each 
other,  and  in  effect  the  opposite  faces  of  the  same  facts.  An 
article  is  produced  and  is  offered  in  the  market:  it  is  now  sup- 
ply, but  the  possession  of  that  article  confers  upon  the  owner 
a  purchasing  power,  and  that  power  being  exercised,  the  arti- 
cle becomes  a  source  of  demand  ;  nor  is  there  any  other  source 
from  which  demand  can  spring.     Demand,  as  an  aggregate, 


GROWS  AS  WEALTH  INCREASES.  195 

can  not  increase  without  supply,  nor  supply  without  demand. 
This  is  fundamental,  the  direct  consequence  of  industry  carried 
on  upon  the  principle  of  division  of  labor.  But,  this  being  so, 
we  are  led  to  ask,  what  is  the  significance  of  the  question 
which  has  been  proposed?  Suppose  the  Wages-fund  to  in- 
crease under  the  circumstances  imagined;  and  suppose  farther, 
that,  in  every  instance,  the  increase  is  found  to  be  connected 
with  a  demand  for  commodities — what  then  ?  Have  we  sound- 
ed the  problem  when  we  attribute  the  result  to  the  demand  for 
commodities?  Or  rather,  is  it  not  very  evident  that,  in  offer- 
ing this  as  a  solution,  we  are  confounding  the  mechanism  by 
which  certain  results  are  brought  about  with  the  motive  forces 
which  work  through  this  mechanism.  The  upward  and  down- 
ward movements  of  the  piston  of  a  steam-engine  are  invariably 
preceded  by  certain  movements  of  the  valves  which  admit  the 
steam  alternately  above  and  below  it.  As  the  action  of  the 
valves  becomes  more  rapid,  the  movements  of  the  piston  be- 
come more  rapid,  and  if  the  former  ceases,  the  engine  stops. 
Yet  it  .will  scarcely  be  maintained  that  the  motion  of  the 
steam-engine  is  explained  by  referring  it  to  the  action  of  the 
steam-valves.  This,  however,  is  precisely  the  sort  of  explana- 
tion that  satisfies  those  persons  who  undertake  to  explain  an 
increase  of  wealth  by  reference  to  the  demand  for  commodities. 
They  observe,  for  example,  a  sudden  increase  of  prosperity  in 
some  branch  of  industry,  and  they  perceive  that  this  has  been 
preceded  b}^  an  increased  demand  for  the  products  of  that  in- 
dustry. They  perceive  also,  that  the  increased  prosperity  of 
this  industry  will  extend  itself  to  others  through  the  medium 
of  a  demand  for  products;  and  from  these  again  to  others,  in  a 
still  widening  circle.  Further  they  perceive,  or  at  least,  if  they 
carry  their  study  of  the  problem  so  far,  they  may  perceive, 
that,  when  the  supply  of  each  commodity  has  been  brought  up 
to  the  enlarged  demand  for  it,  the  returns  on  the  industry  de- 
cline to  their  normal  level ;  and  again,  that,  where  the  exten- 


V 


196  THE  DEMAND  FOE   COMMODITIES. 

sion  of  supply  is  carried  beyond  this  point,  and  demand  falls 
short,  the  gains  are  converted  into  losses.  Trading  gains  are 
thus  found  in  every  instance  to  be  associated  with  a  demand 
for  commodities,  and  trading  losses  with  a  failure  of  demand ; 
and  our  philosophers,  struck  with  the  coincidence,  exclaim 
"  fuprjKo !"  and  exultingly  produce  "  the  demand  for  commodi- 
ties "  as  the  key  to  the  industrial  problem.  It  never  occurs  to 
them  to  inquire  what  set  the  economic  valves  in  motion,  or  to 
reflect  that  the  increased  demand  for  commodities  is  itself  a 
phenomenon  requiring  explanation  ;  but  having  traced  the  in- 
dustrial movements  up  to  the  valves  of  supply  and  demand, 
they  consider  their  task  accomplished,  and  all  searching  after 
remoter  causes  as  supererogatory,  if  not  profane. 

The  real  nature  of  the  connection  between  the  demand  for 
commodities  and  the  progress  of  industrial  well-being  is,  after, 
all,  not  m3'sterious — at  least  for  any  one  who  bears  in  mind 
the  elementary  truth  that  our  industrial  system  is  founded 
upon  division  of  labor.  It  results  from  this,  that  every  in- 
crease of  wealth  implies  an  increase  of  products  to  be  ex- 
changed— an  increase,  therefore,  at  once  of  demand  and  of  sup- 
ply; and  it  results  also  from  this — seeing  that  the  satisfaction 
of  reciprocal  needs  is  the  end  and  purpose  of  the  system — that 
a  demand  for  a  producer's  or  a  dealer's  commodities  must  al- 
ways be  a  condition  precedent  to  the  realization  of  his  gains. 
This  is  the  real  nature  of  the  connection  ;  which,  though  it  im- 
plies a  constant  correspondence  between  the  aggregate  income 
of  a  country  and  the  aggregate  demand  for  commodities  with- 
in that  country,  does  not  im])ly  that  the  latter  phenomenon  is 
the  cause  of  the  former ;  nor  that  any  particular  branch  of  the 
aggregate  income,  such  as  that  which  supports  the  laboring 
population,  must  increase  ^an  ^;a5.SM  with  the  increase  of  the 
whole,  or  with  that  of  the  aggregate  demand  for  commodities. 
If  this  were  so,  as  the  same  argument  would  apply  equally  to 
all  other  branches  of  the  aggregate  income,  it  would  follow 


GROWS  AS  WEALTH  INCREASES.  197 

that  the  several  constituent  parts,  into  which  the  income  of  ev- 
ery community  resolves  itself,  should  always  bear  the  same 
proportion  to  each  other,  and  that,  for  example,  wages,  prof- 
its, and  rent  should  always  preserve  the  same  relative  mag- 
nitude. This  ought  to  be  a  sufficient  reductio  ad  absurdum  of 
the  doctrine.  But  I  have  already  given  direct  proof  of  its 
fallacy. 

Of  the  well-being  which  results  from  a  growth  of  national 
wealth,  there  is,  however,  one  element  which,  though  not  prop- 
erly attributable  to  the  increased  demand  for  commodities,  yet 
connects  itself  with  this  agency  in  a  somewhat  special  and  pe- 
culiar way.  Adam  Smith,  in  a  well-known  passage,  has  re- 
marked that  the  division  of  labor  is  limited  by  the  extent  of 
the  market,  and  it  is  obvious  that,  not  merely  division  of  labor, 
but  the  use  of  machinery,  is  limited  by  this  condition.  Pro- 
duction, universally  in  manufacturing  industry,  and  to  some 
extent  in  agriculture,  must  be  carried  on  upon  a  certain  scale 
of  magnitude  before  labor  can  be  duly  organized,  and  the  most 
efficient  appliances  be  brought  into  operation  ;  but  production 
on  this  scale  will  not  be  profitable  unless  the  demand  for  the 
commodity  at  the  normal  price  be  sufficiently  great  to  take  off" 
the  whole  supply.  Where,  therefore,  the  scale  of  production 
has  not  already  attained  the  maximum  of  efficiency,  an  en- 
larged demand  for  commodities,  by  permitting  its  extension, 
may  lead  to  a  more  efficient  organization  of  productive  forces, 
and  thus  accelerate  the  growth  of  wealth.  This  consequence, 
indeed,  has  no  special  connection  with  the  remuneration  of  la- 
borers, any  more  than  with  that  of  any  other  industrial  class. 
But  it  at  least  favors,  as  every  thing  that  tends  to  increase 
wealth  and  render  industr}'-  more  productive  must  favor,  the 
growth  of  the  Wages-fund.  Even  here,  however,  the  attribu- 
tion of  the  result  to  the  demand  for  commodities  fails  to  set 
the  phenomenon  in  its  true  light ;  while  this  mode  of  stating 
the  case  is  open  to  the  objection  of  countenancing  the  notion 


198  THE  DEMAND  FOE   COMMODITIES. 

that  the  demand  for  commodities  may  increase  independently 
of  the  supply — a  notion,  as  I  have  said,  at  the  bottom  of  nearly 
all  the  confusion  of  thought  that  prevails  on  this  suliject.  The 
fact  only  receives  its  adequate  explanation  when  it  is  referred, 
neither  to  demand  nor  to  supply,  but  to  that  extension  of  the 
field  for  the  interchange  of  products  incident  to  an  increasing 
production  of  wealth,  which  leads  to  an  augmentation  at  once 
of  demand  and  of  supply. 

In  the  remarks  just  made  I  have  had  in  view  the  effect  of 
an  increase  in  the  demand  for  commodities  upon  the  condition 
of  the  laboring  population  as  a  whole.  I  have  not  considered 
its  effect  upon  relative  wages.  But  it  is  evident  that  what 
has  been  already  said  upon  this  aspect  of  the  case  in  connec- 
tion with  diversions  of  demand  will  apply  here,  with  this  dif- 
ference, that  the  changes  in  relative  wages  which  may  result 
from  an  increase  in  aggregate  demand  will  in  general  be  in  the 
nature  of  different  degrees  of  advance,  and  will  not  necessarily, 
or  in  fact  generally,  issue  in  the  positive  depression  of  wages 
in  any  department  of  trade.  According  as  the  new  demand 
takes  one  direction  or  another,  certain  industries  will  gain 
more  or  less  largely  than  others ;  and  the  capital  of  the  coun- 
try will  be  distributed  to  meet  this  state  of  things ;  but  as,  in 
the  case  we  are  now  supposing,  the  aggregate  capital  of  the 
country  would  almost  certainly  increase  —  whether  in  propor- 
tion to  the  increase  in  the  aggregate  demand  for  commodities 
or  not  would  depend  upon  the  general  conditions  affecting  in- 
vestment— the  larger  application  of  it  to  particular  industries 
would  not  necessarily  imply  any  withdrawal  of  it  from  others. 
Such  changes,  therefore,  in  relative  wages  as  might  occur  would 
generally  be  in  the  nature  of  different  degrees  of  advance;  and 
these  relative  results  would,  as  in  the  case  of  diversions  of  de- 
mand, be  temporary  merely  or  permanent,  according  as  there 
was  or  was  not  an  effective  competition  among  the  workmen 
in  the  industries  concerned. 


SUMMARY  OF  RESULTS.  199 

§  4.  Summing  up  the  results  of  this  discussion,  we  may  lay 
down  the  following  propositions : 

I.  Where  the  influence  exerted  by  the  demand  for  com- 
modities arises,  not  from  an  increase  in  its  aggregate  amount, 
but  from  a  change  in  its  direction,  the  effect  is  limited  to  a 
change  in  the  distribution  of  the  Wages-fund,  without  affect- 
ing the  aggregate  amount  of  wealth  placed  at  the  disj)osal  of 
labor. 

II.  Such  changes  in  the  distribution  of  the  Wages-fund  are 
attended  with  changes  in  the  relative  rates  of  remuneration  in 
different  branches  of  industry,  leading  to  a  rise  in  some  and  a 
fall  in  others ;  and  those  changes  may  or  may  not  be  perma- 
nent, according  as  labor  is  free  or  not  to  move  between  the  oc- 
cupations affected.  Where  competition  among  workmen  is 
effective,  the  relative  rates  will  after  a  little  time  be  restored 
to  their  former  level;  but,  where  competition  is  not  effective, 
the  changes  which  take  place  become  definitive — that  is  to  say, 
will  continue  so  long  as  social  circumstances  remain  the  same 
and  the  altered  conditions  of  remuneration  in  the  several  in- 
dustrial groups  do  not  operate  to  disturb  the  relation  of  popu- 
lation to  capital  within  those  groups. 

III.  The  influence  thus  exerted  by  changes  in  the  demand 
for  commodities  may  be  operative  on  an  international  scale, 
and  may  thus  affect  the  average  level  of  wages  throughout  an 
entire  community;  the  gain,  however,  to  the  country  profiting 
by  the  movement  being  always  compensated  by  a  correspond- 
ing loss  incurred  by  some  other  country  or  countries. 

IV.  When  the  change  in  the  demand  for  commodities  is  in 
the  nature  of  an  increase  in  its  aogregate  amount,  arisino;  from 
a  growth  of  general  wealth,  the  increase  of  demand  is  here  an 
accompaniment  of  conditions  which  are  favorable  to  the  growth 
of  the  Wages-fund;  but  its  connection  with  the  consequences 
that  ensue  is  not  that  of  a  causal  kind:  it  is  merely  an  inci- 
dent of  the  industrial  mechanism  by  which,  under  a  system  of 


200  THE  DEMAND  FOR  COMMODITIES. 

division  of  labor,  the  results  of  increased  production  are  real- 
ized by  individuals  and  classes. 

V.  Such  an  increase  in  the  aggregate  demand  for  commodi- 
ties may,  however,  produce  changes  in  the  relative  remunera- 
tion of  labor,  analogous  to  those  produced  by  changes  in  the 
direction  of  demand — changes  which,  as  in  the  former  case,  will 
be  temporary  or  permanent  according  as  the  competition  among 
the  workmen  concerned  is  effective  or  not. 

§  5.  The  point  of  view  which  we  have  now  reached  will  en- 
able us,  I  think,  to  set  in  a  somewhat  clearer  light  than  has 
hitherto  been  done  a  problem  of  some  intricacy — the  nature 
of  the  relation  between  wages  and  prices.  The  doctrine  laid 
down  upon  this  subject  in  the  best  treatises  of  Political  Econ- 
omy is  contained  in  two  propositions  to  the  effect,  first,  that 
general  wages  (understanding  by  this  general  real  wages,  the 
real  remuneration  received  by  the  workmen)  and  general  prices 
have  no  necessar}'-  connection.  High  wages,  we  are  told,  do 
not  make  high  prices,  any  more  than  high  prices  make  high 
wages.  And,  secondly,  that  when  the  wages  of  any  class  of 
workmen  are  exceptionally  high  or  low — that  is  to  say,  either 
above  or  below  the  rate  prevailing  in  other  occupations,  allow- 
ance being  made  for  the  special  circumstances  of  each  case 
— then  they  do  aflfect  prices.  Apparently  it  is  not  considered 
that  in  any  case  prices  may  affect  wages. 

The  first  of  these  propositions  I  hold  to  be  indisputably 
sound  and  quite  fundamental.  It  is  scarcely  possible  indeed 
that  any  one  reflecting  on  the  elementary  conditions  of  human 
well-being  should  hesitate  to  admit  its  truth.  For  to  suppose 
that  the  real  wages  of  labor — the  food,  clothing,  lodging,  and 
other  comforts  and  conveniences  which  go  to  form  the  remu- 
neration of  industry — have  any  necessary  connection  with  the 
general  range  of  prices,  is  to  suppose  that  the  well-being  of  the 
mass  of  mankind  is  linked  to  the  abundance  or  scarcity  of  the 


INCOMPLETE  THEORIES.  201 

particular  substance  which  happens  to  form  the  material  of 
money ;  nay,  if  the  position  taken  be  that  money,  wages,  and 
prices  must,  as  general  facts,  fluctuate  together,  it  is  to  suppose, 
not  only  that  the  condition  of  the  immense  majority  of  human 
beings  is  determined  by  this  purely  artificial  circumstance,  but 
also  that  it  is  fixed  and  unchangeable;  since  there  could  man- 
ifestly be  no  improvement  in  the  laborer's  condition  if  every 
augmentation  of  the  money  paid  him  was  attended  with  a  cor- 
responding diminution  of  its  purchasing  power.  The  first  of 
the  propositions  laid  down,  therefore,  must  be  taken  as  incon- 
trovertible; and  yet  perhaps  there  are  few  statements  in  eco- 
nomic science  that  are  more  apt  to  strike  an  outsider  as  par- 
adoxical. It  would,  on  the  contrarj^  be  held  by  those  who 
only  look  at  the  phenomena  from  the  practical  stand-point 
that  wages  and  prices  are,  as  a  general  rule,  strictly  connected ; 
that  high  wages  make  high  prices,  and  high  prices  high  wages ; 
a  view  in  support  of  which  they  would  confidently  appeal  to 
experience,  and  might  easily  adduce  facts  which,  at  all  events, 
the  current  theory,  as  it  stands,  wholly  fails  to  explain.  In 
short,  there  is  here  a  conflict  between  the  conclusions  of  theory 
and  the  generalizations  of  practical  observers.  Now  where  this 
happens,  we  may  pretty  confidentl}^  assume,  even  though,  as 
in  the  case  we  are  considering,  the  popular  inductions  can  be 
shown  to  be  erroneous  and  even  absurd,  that  the  theory  also 
is  in  fault.  It  will  in  general  at  best  be  incomplete;  and  I 
think  it  will  not  be  difficult  to  show  that  this  is  so  in  the  pres- 
ent instance. 

The  economic  doctrine  as  to  the  relation  between  wages  and 
prices,  as  commonly  set  forth,  seems  to  be  defective  in  two 
points.  First,  it  fails  to  recognize,  or  at  all  events  to  take  due 
account  of  the  fact,  that  changes  in  general  wages  or  prices 
never  take  place  ^e?-  saltum;  that  the  general  result  is  always 
reached  by  a  succession  of  partial  movements,  usually  extend- 
ing over  a  considerable  period  of  time.     And,  secondly,  the 


202  THE  DEMAND  FOB   COMMODITIES. 

recognition  given  to  the  connection  between  prices  and  wages 
is  quite  inadequate.  According  to  the  current  doctrine,  prices 
may  be  effected  by  wages,  where  wages  in  particular  trades 
are  exceptionally  high  or  low :  this  is  the  sole  relation  ac- 
knowledged to  subsist  between  the  phenomena;  and  the  lan- 
guage suggests  that  the  connection  in  this  case  is  abnormal. 
Now,  in  the  first  place,  it  is  not  true  that,  where  wages  and 
prices  vary  together,  wages  are  always  the  cause  and  prices 
the  effect.  In  point  of  fact,  the  rise  or  fall  of  price  more  fre- 
quently precedes  than  follows  that  of  wages.  The  most  usual 
order  of  occurrence  would  probably  be — a  rise  or  fall  of  price ; 
then  a  movement  of  capital  toward  or  from  the  trade ;  and^ 
lastly  an  advance  or  fall  of  wages.*  Instead  of  prices  rising, 
in  order  to  allow  capital  the  current  profit  on  a  production  in 
which  wages  have  already  risen  (which  is  the  usual  way  of  put- 
ting the  case),f  the  more  common  event  is — wages  for  a  time 
quiescent,  until  the  exceptionally  high  profits  of  capitalists,  due 
to  a  previous  rise  of  'price ^  attract  new  capital  to  the  trade ;  then 
competition  for  labor,  issuing  in  an  advance  of  wages  and  a 


*  Nearly  such  has  been  the  order  of  proceedings  in  the  recent  movements  in 
the  iron  and  coal  trades.  "It  is  clearly  shown,"  says  the  Select  Committee  on 
Coal  (p.  xi.  of  their  Report)  "that  the  real  order  of  events  has  been  the  rise  in 
the  price  of  iron,  the  rise  in  the  price  of  coal,  and  the  rise  in  the  rate  of  wages." 
I  say  "  nearly  such,"  because  in  this  case  the  movement  of  capital  toward  the  af- 
fected trades  did  not  precede  the  advance  of  wages ;  the  two  latter  stages  of  the 
process  having  been  accelerated,  and  made  to  synchronize,  by  the  action  of  strikes. 

t  For  example,  Professor  Fawcett  writes:  "It  frequently  happens  that  the 
wages  of  the  laborers  employed  in  the  manufacture  of  a  particular  commodity 
advance  as  the  demand  for  the  commodity  increases.  If  this  occurs,  these  par- 
ticular manufactured  goods  will  rise  in  price,  in  order  that  the  employer  may  be 
compensated  for  the  higher  wages  he  is  now  obliged  to  pay"  ("Manual  of  Po- 
litical Economy,"  p.  290).  That  is  to  say,  the  increased  demand  for  the  com- 
modity will  cause  an  advance  in  the  wages  of  the  laborers  who  produce  it  before 
producing  any  effect  upon  its  j)rice.  I  confess  that  appears  to  me  to  be  a  scarce- 
ly possible  occurrence:  at  least,  I  can  not  but  regard  it  as  an  inversion  of  the 
usual  order  of  events. 


INCOMPLETE  THEORIES.  203 

fall  of  profits  to  the  current  level.  Nor  is  the  close  corre- 
spondence and  mutual  interaction  of  the  phenomena  in  any 
sense  abnormal  or  exceptional :  it  may,  on  the  contrary,  be 
said  to  be  the  rule ;  while  the  case  in  which  they  diverge  or 
move  independently  of  each  other  is  the  exception.  The  act- 
ual state  of  this  portion  of  economic  theory,  therefore,  however 
irrefragable  so  far  as  it  goes,  is  plainly  inadequate;  failing  as 
it  does  to  elucidate  many  familiar  phenomena  of  wages  and 
prices;  and  the  purpose  of  the  remaining  portion  of  this  chap- 
ter will  be  to  supplement,  as  far  as  seems  needful,  existing  de- 
ficiencies in  this  respect. 

§  6.  And  here  I  must  premise  by  observing  that  the  relation 
which  it  is  proposed  to  examine  is  that  between  prices  and 
wages  measured  in  money.,  not  that  between  prices  and  real 
wages;  a  remark  which  needs  to  be  supplemented  by  an- 
other, viz.,  that  it  is  not  to  be  assumed  on  this  account,  that 
the  real  interest  of  the  laborer  is  not  involved  in  the  discus- 
sion. A  parallel  movement  between  wages  and  prices  is  im- 
material where  it  is  general,  where  all  wages  and  all  prices  are 
affected  at  the  same  time  and  in  the  same  degree.  But,  as 
I  have  already  observed,  this  is  what  never  happens.  The 
changes  which  occur  in  prices  and  wages  are  always  confined, 
for  a  period  longer  or  shorter,  according  to  circumstances,  to 
particular  branches  of  trade;  and  where  this  is  so,  a  change 
in  money  wages  will  genci'ally*  involve  a  change,  though  not 
necessarily  a  proportional  change,  in  real  wages  too;  since, 
owing  to  the  circumstance  that  the  movement  is  not  general, 
it  will  place  the  recipients  in  a  better  or  a  worse  position  (as 
the  case  may  be)  in  reference  to  all  commodities  of  which  the 
prices  remain  at  their  former  level.     Where  in  one  or  more 

*  Not  necessarily  always — e.g.,  if  the  things  which  did  not  rise  or  fall  were 
commodities  only  consumed  by  the  rich,  the  laborer  would  be  none  the  better  or 
worse  for  the  change. 


204  THE  DEMAND  FOR   COMMODITIES. 

trades  wages  and  prices  advance  or  fall  equall}',  the  workmen 
in  the  trades  thus  affected  will  neither  gain  nor  lose  so  far  as 
they  consume  their  own  productions ;  but  they  will  gain  or 
lose  to  the  full  extent  of  the  advance  or  fall  in  their  wages  so 
far  as  they  consume  the  productions  of  other  trades.  So  much 
being  premised,  I  proceed  now  to  the  consideration  of  our 
problem. 

It  has  been  already  shown  that  a  change  in  the  demand  for 
commodities,  proceeding  from  a  diversion  of  expenditure  from 
its  ordinary  course,  may  produce  a  change  in  relative  wages, 
raising  the  rate  in  some  branches  of  industry  and  lowering  it  in 
others;  and,  further,  that  occurring  on  an  international  scale, 
the  same  circumstance  may  affect  the  rate  of  wages  throughout 
an  entire  community.  Now  in  all  such  cases — and  they  com- 
prise a  large  proportion  of  all  fluctuations  in  wages — the  result, 
if  not  brought  about  through  an  action  on  prices,  at  least  coin- 
cides with  an  action  on  prices:  the  two  phenomena  move  al- 
ways in  the  same  direction,  and  generally  in  parallel  lines. 
The  reasons  for  this  have  been  already  partially  set  forth,  and 
will  be  presently  more  fully  stated.  But,  again,  not  in  such 
cases  only,  but,  with  a  single  important  exception  to  be  present- 
ly noticed,  in  all  considerable  movements  of  prices  and  wages, 
if  not  a  strict  parallelism,  at  least  a  general  correspondence  be- 
tween the  phenomena  of  prices  and  wages  will  be  found  to  ob- 
tain. An  advance  or  fiill  of  prices  in  any  branch  of  production, 
if  sustained  for  any  considerable  time,  will,  pretty  certainly,  be 
followed  by  an  advance  or  fall  of  wages  in  the  same  industries; 
as  an  advance  or  fall  of  wages  will  with  equal  certainty  be  fol- 
lowed by  an  advance  or  fall  of  prices.  In  order  to  exhibit  the 
grounds  of  this  statement,  it  will  be  desirable  to  consider  the 
several  sets  of  conditions  (irrespective  of  that  already  referred 
to  which  consists  in  a  change  in  the  demand  for  commodities) 
under  which  important  alterations  in  the  rate  of  wages  may 
take  place.     In  what  I  am  about  to  say  I  shall  confine  my  at- 


CORRESPONDING  MOVEMENTS.  205 

tention  chiefly  to  tlie  case  of  an  advance  of  wages;  but  it  will 
be  obvious  that  precisely  analogous  considerations  apply  to 
that  of  a  fall. 

§  7.  We  may  take  then,  first,  the  case  of  a  new  country,  in 
which  the  rate  of  profit  is  still  considerably  above  the  practical 
minimum ;  in  which,  consequently,  wages  may  rise  at  the  ex- 
pense of  profits,  and  therefore  without  any  increase  in  the  pro- 
ductiveness of  industry  ;  and  we  will  suppose  that  the  advance 
is  occasioned  by  a  growth  of  capital  more  rapid  than  that  of 
population.  The  advance  of  wages  which  would  occur  under 
such  circumstances  would  not  be  a  mere  relative  movement — 
an  advance  in  some  industries  balanced  by  an  equivalent  fall 
in  others,  such  as  occurs  under  the  action  of  a  demand  for 
commodities,  but  an  advance  unaccompanied  by  any  fall,  and 
implying  therefore  a  rise  of  the  average  rate.  Even  here,  how- 
ever, though  the  movement  might  be  ultimately  general,  it 
would  still  proceed  by  partial  and  limited  steps.  The  new 
capital  would  not  be  distributed  indifferently  over  all  industries, 
but  would  be  determined  toward  the  particular  industries  in 
which  at  the  moment  there  was  the  best  prospect  of  an  en- 
larged sale  for  products;  and  it  would  be  in  those  industries 
that  wages  would  first  rise.  But  these  would  be  the  industries 
in  which  the  products  were  selling  above  the  normal  rates.  In 
other  words,  high  wages,  if  not  produced  by  high  prices,  would 
at  least  attend  on  high  prices.  x\nd  this  coincidence  would 
not  be  confined  to  the  first  steps,  but  would  be  maintained 
throughout  the  whole  course  of  the  ascending  movement; 
which  would  be  realized  in  the  several  industries  in  the  order 
in  which  the  prices  of  their  products  ranged  above  the  normal 
level.  It  is  true,  indeed,  the  advance  in  wages  and  prices 
would  not  necessarily  be  a  proportional  advance.  Wages 
might  advance  more  than  prices,  or  prices  more  than  wages. 
And  it  is  also  true  that  the  correspondence,  such  as  it  was, 


206  WAGES  AND  PRICES . 

might  not  be  of  long  continuance ;  since  the  increased  produc- 
tion would  sooner  or  later  bring  down  the  abnormally  raised 
prices,  while  (profits  not  being  at  the  minimum)  the  advance 
in  wages  might  be  maintained.  But,  conceding  all  this,  the 
correspondence  would  still  be  generally  maintained  at  all  events 
while  the  movement  was  in  progress ;  while  it  is  further  to  be 
considered  that,  as  the  case  is  that  of  a  normal  growth  of  capi- 
tal, unaccelerated  by  any  important  improvements  in  produc- 
tion, it  is  probable  that  population,  under  the  stimulus  of  its 
bettered  condition,  would  speedily  overtake  the  increase  of 
capital,  in  which  event  wages  would  subside  to  their  former 
level ;  and,  in  subsiding,  would  again  follow  the  course  indi- 
cated by  prices,  falling  first  in  those  industries  in  which  prices 
were  lowest.  On  the  whole,  then,  in  this  case,  though  I  do  not 
pretend  to  say  that  the  parallelism  would  be  exact,  and  though 
it  is  possible  the  ultimate  result  might  be  a  definitive  diver- 
gence of  the  two  phenomena ;  still,  speaking  broadly,  we  may 
say  that  a  general  correspondence  between  prices  and  wages 
would  be  maintained,  a  correspondence  quite  sufficient  to  ac- 
count for  the  popular  impression. 

§  8.  Let  us  now  consider  another  case :  an  advance  in  wages 
arising  under  a  growth  of  wealth  due  either  to  improved  in- 
dustrial processes,  or  to  an  extension  of  foreign  trade.  The 
latter  cause,  as  I  have  already  pointed  out,  would  operate  al- 
ways through  a  demand  for  commodities,  and  the  advance  of 
wages  would  therefore  in  this  case  be  always  preceded  or  at- 
tended by  an  advance  of  prices — not  indeed,  it  must  always 
be  remembered,  a  general  advance  of  prices,  but  an  advance 
in  the  particular  industries  affected  by  the  extension  of  for- 
eign trade.  But,  where  the  growth  of  capital  proceeded  from 
improved  industrial  processes,  the  course  of  things  would  be 
somewhat  different.  This  is  the  case  which  offers  the  most 
striking   exception    to    the   general    correspondence    between 


ADVANCE  IN  PRICES.  207 

wages  and  prices;  for  here,  while  wages  would  rise,  prices  in 
the  industries  profiting  by  the  improved  processes  would  fall. 
Nevertheless,  though  the  rule  would  fail  in  the  instance  of 
those  industries,  it  would  receive  abundant  illustration  from 
the  accompanying  phenomena.  For  one  result  of  the  cheap- 
ness effected  in  certain  products  would  be  to  leave  a  larger 
amount  of  purchasing  power  available  for  expenditure  in  other 
directions.  Hence  would  arise  an  increased  demand  for  the 
commodities  of  other  industries,  which  would  be  followed  by 
an  advance  in  their  prices,  by  a  larger  application  of  capital  to 
their  production,  and  finally  by  a  rise  in  the  wages  of  the  pro- 
ducers. The  advance  in  prices  would  not  indeed  in  this  case 
(assuming  the  value  of  money  to  remain  constant)  be  perma- 
nently maintained,  at  least  where  the  competition  among  work- 
men was  effective  ;  but  no  more — profits  being  at  the  practical 
minimum — would  the  advance  in  money  wages;  and  the  im- 
provement in  the  real  wages  of  laborers,  so  far  as  it  was  per- 
nanently  realized,  would  be  only  in  proportion  to  the  cheap- 
ening of  products.  On  the  other  hand,  where  circumstances 
had  given  a  virtual  monopoly  to  any  particular  class  of  work- 
men, money  wages  and  prices  alike,  as  I  have  already  shown, 
would  remain  permanently  above  the  normal  level ;  and  such 
workmen  would  be  enriched  by  a  double  process — they  would 
receive  larger  money  returns  for  their  own  labor,  and  would 
obtain  the  products  of  other  industries  at  a  reduced  price.  In 
this  case  also,  then,  though  in  certain  branches  of  production 
there  would  be  a  marked  divergence  between  wages  and  prices, 
in  the  great  majority  of  industries  the  two  phenomena  would 
fluctuate  together. 

§  9.  One  case  still  remains  to  be  considered,  and  it  deserves 
our  attention  the  more,  as  the  influence  which  it  exhibits  is 
one  now  in  constant  operation — I  mean  the  effects  produced 
on  wages  and  prices  by  an  increased  supply  of  the  precioufc^ 


208  WAGES  AND  PRICES. 

metals,  and  a  consequent  depreciation  of  money.  As  the  case 
is  ordinarily  represented,  a  depreciation  of  money  takes  effect 
in  a  uniform  and  simultaneous  advance  of  all  wages  and  prices ; 
a  state  of  things  which  would  leave  the  real  well-being  of  the 
several  classes  of  society  substantially  unaffected ;  each  person 
receiving  a  larger  sum  of  money,  and  paying  away  a  propor- 
tionally larger  sum,  in  every  transaction.  But  such  a  state- 
ment, though  it  expresses  truly  enough  the  final'  result  of  an 
increase  of  money,  after  the  disturbances  it  creates  have  found 
their  due  correction — a  result  which  it  may  take  perhaps  half 
a  century  to  accomplish — yet,  as  an  exposition  of  the  actual 
phenomena  which  it  purports  to  describe,  must  be  pronounced 
to  be  absolutely  erroneous.  The  supposition  that  wages  and 
prices  advanced  ^Jot^'^  .passu  over  the  whole  area  of  productive 
industry  is  no  more  true  where  an  increase  of  money  is  con- 
cerned than  in  any  other  case.  The  new  money  can  only  pro- 
duce its  effects  by  being  made  the  instrument  of  demand  ;  and 
the  demand  is  not  distributed  indifferently  over  commodities 
in  general,  but  is  directed  toward  particular  classes  of  commod- 
ities according  to  the  needs  and  tastes  of  its  possessors.  What 
happens,  therefore,  in  this  case  is  what  happens  in  all  others. 
Certain  commodities  rise  in  price  first;  these  are  followed  by 
others,  and  these  again  by  others,  the  interval  between  the  sev- 
eral steps  being  often  of  considerable  duration;  and  the  ad- 
vance in  prices  is  followed  by  an  advance  of  wages.  What 
chiefly  distinguishes  this  case  from  those  previously  adverted 
to  is,  first,  that  the  movement  ultimately  extends  over  the  whole 
area  of  industry,  embracing  all  occupations;  and,  secondly,  that, 
though  the  prices  of  some  commodities  may  temporarily  drop 
from  overproduction,  and  with  them  the  wages  of  the  producers, 
the  normal  level  of  both  wages  and  prices  is  })crmanently  raised.* 


*  I  say  the  "normal,"  not  the  actual,  level;  for  prices  might  be  actually  lower 
than  formerly,  yet  if  production  had  been  chcaiiencd  by  improved  processes  in  a 
still  greater  degree,  the  lower  actual  price  would  indicate  a  higiier  normal  price. 


CONNECTING  PBINCIPLES.  209 

Tlic  result  of  our  examination,  then,  has  been  to  show  a 
very  intimate  relation  subsisting  between  wages  and  prices. 
The  movements  indeed  are  not  always  in  the  nature  of  strictly 
}>arallel  movements ;  but  they  are  always  in  the  same  direc- 
tion, and  are  manifestly  under  the  attraction  of  some  common 
influence.  Nor  can  there  be  much  difficulty  in  determining 
what  that  influence  is.  As  I  have  already  frequently  remark- 
ed, the  real  source  of  the  remuneration  of  producers,  looking 
at  production  as  a  continuous  act,  is  the  value  of  their  prod- 
ucts. Money  wages  and  profits,  therefore,  as  an  aggregate, 
musl  vary  in  each  branch  of  trade  with  the  sum  representing 
the  aggregate  products  proceeding  from  the  industry  of  the 
producers  in  that  trade;  or  (assuming  the  efficiency  of  indus- 
try in  the  trade  to  remain  constant)*  with  the  prices  of  the 
specific  commodities  which  constitute  those  products.  If 
wages,  therefore,  do  not  rise  or  fall  strictly  in  proportion  to' 
the  money  value  of  the  aggregate  products,  or  (in  the  absence 
of  changes  in  productive  power)  to  the  prices  of  the  specific 
commodities,  it  can  only  be  because  a  larger  share  of  the  re- 
sult has  fiillen  to  profits,  whether  in  the  form  of  loss  or  gain. 
But  profits  will  not  remain  permanently  in  any  branch  of 
trade  above  or  below  the  normal  level ;  and  the  competition 
of  capitalists  will  result  either  in  lowering  prices  or  raising 
wages,  or,  mutatis  mutandis,  in  raising  prices  or  lowering  wages. 
In  any  case,  wages  and  prices  will  gravitate  toward  each  other. 
Where,  indeed,  prices  have  been  reduced  through  improve- 
ments in  production,  the  result  will  follow,  not  the  variations 
in  the  price  of  the  specific  commodity,  but  those  in  the  money 


*  The  reader  will  note  the  reason  for  this  qualification.  The  price  of  the  com- 
modity may  rise  or  fall ;  but,  if  it  only  rises  or  falls  in  proportion  to  the  cost  of 
j)roduction,  the  money  value  of  the  product  proceeding  from  a  given  exertion  of 
industry  will  remain  the  same.  It  is  only  on  the  supposition  that  the  productive- 
ness of  industry  remains  constant,  that  the  price  of  the  specific  commoditv  will 
vary  with  the  money  value  of  the  product. 

14 


•210  WAGES  AND  PRICES. 

value  of  the  aggregate  product.  This  latter  will  be  larger  in 
proportion  as  industry  is  more  productive ;  but  the  specific 
price  falling  with  the  cost,  the  money  returns  divisible  among 
the  producers  will  be  the  same  as  before;*  and  the  ultimate 
gain  for  them  will  be  realized,  not  in  an  increase  of  either 
wages  or  profits  (measured  in  money),  but  in  the  lowered  price 
of  the  article  they  produce.  There  is  thus  a  real  and  funda- 
mental connection  between  money  wages  and  prices.  Yet  I 
conceive  it  would  be  incorrect  to  describe  either  phenomenon 
as  the  cause  or  the  effect  of  the  other  :f  they  are  rather  co-or- 
dinate results  of  a  common  cause — that  cause  being  the  in- 
fluence, whatever  it  may  happen  to  be,  which  determines  the 
products  of  a  particular  industry  to  exchange  for  those  of 
others  on  more  or  less  favorable  terms  than  had  previousl}^ 
obtained. 

§  10.  One  point  in  connection  with  the  problem  we  are  con- 
sidering remains  still  to  be  cleared  up.  It  has  been  strongly 
asserted  that  there  is  absolutely  no  necessary  connection  be- 
tween the  high  or  low  range  of  general  prices  and  the  real 
well-being  of  workmen  ;  that  high  general  wages  do  not  make    ) 


*  I  assume  for  convenience  that  tlie  demand  for  the  article  would  increase  in 
proportion  to  the  fall  in  the  price.  There  is,  of  course,  no  necessity  that  this 
should  happen  ;  hut  on  any  other  supposition,  with  regard  to  the  effect  of  the  fall 
of  price  upon  demand,  the  argument,  though  a  little  more  com])licated,  would  be 
equally  valid. 

t  In  the  cases  wliicii  I  have  examined,  tlie  advance  or  fall  in  price  would  almost 
always  precede  the  advance  or  fall  in  wages ;  but  it  is  quite  possible  that  the 
change  in  wages  should  occur  first,  as  happens,  for  example,  when  laborers  by  a 
strike  compel  an  advance  in  Avages,  for  which  capitalists  are  led  afterward  to  in- 
demnify themselves  by  putting  an  increased  price  u])on  their  commodity — an  ex- 
pedient whicli,  it  must  be  carefully  borne  in  mind,  is  only  possible  when  the  cir- 
cumstances of  the  trade  or  the  conditions  of  production  are  such  as  would  in  any 
case,  after  a  time,  lead  to  the  same  result,  and  probably  by  the  more  usual  ])rocess 
in  which  the  rise  in  prices  precedes  the  rise  in  wages.  \ 


MONETARY  PARADOX.  211 

high  general  prices,  nor  high  general  prices  high  general 
wages  (understanding  wages  here  to  mean  the  real  remunera- 
tion of  the  laborei');  and  yet  it  has  appeared  from  our  investi- 
gation that  money  wages  stand  in  intimate  relation  to  prices, 
to  a  very  great  extent  fluctuating  with  them ;  while  it  has 
been  also  pointed  out  that  changes  in  money  wages  are  scarce- 
ly ever  merely  nominal,  but  almost  always  entail  a  real  im- 
provement or  deterioration  of  the  workman's  condition.  These 
two  positions,  it  is  possible,  may  seem  contradictory  to  some 
people;  and  it  will  therefore  be  desirable  to  look  a  little  more 
closely  than  we  have  yet  done  into  the  reciprocal  action  of  the 
several  phenomena.  For  this  purpose  I  will  consider  briefly 
the  case  in  which  the  supposed  discrepancy  assumes  its  most 
prominent  shape — that,  namely,  in  which  a  rise  of  wages  and 
prices  results  from  an  increase  of  money. 

To  put  the  supposed  contradiction  in  its  strongest  form — 
what  results  in  wages  and  prices  as  the  final  outcome,  from 
an  increase  of  money,  is  a  r&jime  of  higher  nominal  values  in 
which  all  wages  and  all  prices  have  risen  in  an  equal  degree; 
in  which,  therefore,  it  is  evident,  no  one's  real  position,  as  re- 
gards command  over  the  necessaries  and  comforts  of  life,  is 
substantially  altered :  and  yet,  in  each  step  toward  the  higher 
nominal  level,  the  particular  advance  will  have  brought  to  the 
workmen  whose  wages  are  affected  a  distinct  gain  in  real  well- 
being.  The  final  outcome  of  a  process,  every  step  of  which  is 
productive  of  positive  effects,  will  thus  be  purely  negative. 
The  thing  to  be  shown  is,  the  process  by  which  these  several 
partial  but  positive  movements  issue  in  this  general  negative 
result;  and  for  this  a  simple  illustration  will  suffice. 

As  I  have  already  remarked,  the  advance  in  wages  and 
prices  under  an  increase  of  money  will  follow  the  direction 
of  the  demand  for  commodities.  Now  let  us  suppose  the  com- 
modity first  to  feel  the  effect  of  the  increased  money  demand 
to  be  shoes:  shoes  will  then  rise  in  price,  and  in  due  time  the 


2IS  WAGES  AND   PRICES. 

money  wnges  of  journej^men  shoe-makers.  But  it  is  evident 
that  this  will  be  for  the  shoe-makers  an  advance  of  real  wages; 
since,  while  receiving  larger  money  wages  than  before,  the  only 
article  of  their  consumption  of  which  the  price  will  have  pro- 
portionally risen  will  be  shoes.  Next,  we  may  suppose  the 
enlarged  demand  to  reach  clothes,  leading  to  a  rise  in  the 
money  wages  of  journeymen  tailors ;  but  this,  again,  will  be 
for  the  tailors  a  rise  of  real  wages;  for  the  case  will  stand 
thus:  shoes  have  already  risen;  and  the  only  prices  affected 
as  the  condition  of  the  advance  in  their  wages  will  be  the  price 
of  clothes :  on  all  commodities,  therefore,  except  clothes,  the 
tailors  will  gain  in  full  proportion  to  the  rise  in  their  money 
wages.  It  is  plain  that  the  same  considerations  will  apply  to 
every  step  in  the  ascending  process,  until  the  entire  cycle  of 
the  industries  is  completed;  at  which  point  shoe-makers,  tai- 
lors, and  producers  of  all  kinds  will  find  themselves  in  posses- 
sion of  incomes  increased  exactly  in  proportion  as  prices  have 
risen — that  is  to  say  (excluding  the  gains  and  losses  which  may 
have  been  realized  during  the  period  of  transition),  neither  bet- 
ter nor  worse  off  than  at  starting.  The  solution  of  the  enigma 
— if  enigma  it  is  to  be  considered — is  of  course  to  be  found  in 
the  circumstance  that  the  gain  made  by  each  class  of  workmen 
is  in  every  instance  obtained  at  the  cost  of  other  workmen, 
those  namely  whose  wages  do  not  share  in  that  particular  ad- 
vance. The  journeyman  shoe-maker  is,  in  the  first  instance, 
benefited,  when,  receiving  a  larger  money  remuneration,  he 
pays  the  same  sum  for  his  clothes,  hats,  and  bread ;  but  the 
tailor,  hatter,  and  baker,  who,  receiving  the  same  money  re- 
turns as  before,  have  to  pay  more  for  their  shoes,  lose  in  the 
aggregate  precisely  what  the  shoe  -  maker  gains.  The  subse- 
quent advance  in  their  wages  and  prices  deprives  the  shoe- 
maker, for  the  future,  of  so  much  of  the  gain  accruing  from 
the  advance  in  Ids  case,  and  places  them  at  an  advantage  as 
regards  other  workmen ;   whose  wages  and  prices  rising  in 


MONETARY  PARADOX.  213 

their  turn  gradually  restore  them  to  their  original  position, 
t-hough  at  the  expense  of  those  who,  during  the  period  of 
transition,  profited  by  their  depression.  Thus  each  class  of 
workmen  gains  by  the  advance  of  money  wages  in  its  own 
case;  but  as  the  circle  extends,  and  the  advance  reaches  other 
classes,  those  previoasl}'-  benefited  part,  item  by  item,  with  the 
advantage  they  had  apparently  secured,  until  in  the  end  the 
real  condition  of  each  is  restored  to  the  original  footing.  It  is 
like  the  gains  and  losses  at  a  round  game  of  cards.  Every  time 
the  pool  is  won,  the  winner  is  richer  precisely  by  the  amount 
of  the  pool ;  but,  if  the  pool  were  always  of  the  same  amount, 
and  each  player  won  in  turn,  it  is  plain  that  at  the  end  of  the 
evening  every  member  of  the  company  would  rise  from  the 
table  neither  richer  nor  poorer  than  he  had  sat  down.* 

We  may  now  resume  the  general  argument  interrupted  by 
this  incidental  discussion. 

*  Analogies  do  not  run  on  all  fours,  and  the  present  analogy  is  not  perfect. 
'I'he  card-players  at  the  close  of  the  game  would  not  merely  have  regained  the 
relative  positions  from  which  they  started,  but  would  each  have  recovered  the 
losses  he  had  incurred  during  the  progress  of  the  game ;  on  the  other  hand,  the 
gains  and  losses,  incident  to  the  period  of  transition  from  a  low  to  a  high  regime. 
of  prices,  would  be  definitive. 


CHAPTER  in. 

TRADES-  UNIONISM.— I. 

§  1.  The  question  whether  in  any  given  state  of  national 
wealth  there  can  properly  be  said  to  be  a  limit  to  the  amount 
of  wealth  available  for  the  payment  of  wages,  and  if  so,  what 
the  nature  of  that  limit  is,  is  one  which  brings  us  into  imme- 
diate contact  with  Trades-Unionism  in  its  most  ambitious,  if 
not  its  most  important,  aims.  If  there  be  no  limit  to  the  fund 
available  for  expenditure  in  wages,  or  if  such  limit  as  exists 
be  of  a  kind  which  may  easily  be  overpassed;  if  beyond  the 
amount  actually  spent  on  wages  at  any  given  time  there  be  an 
indefinite  margin  of  wealth  which  workmen  b}' judicious  com- 
bination may  conquer  ;  then  it  is  evident  Trades-Unionism  has 
a  great  field  before  it,  and  workmen  will  naturally  and  prop- 
erly look  to  this  agency  as  the  principal  means  of  improving 
their  condition.  But  if,  on  the  other  iiand,  the  amount  of 
wealth  spent  in  wages  at  any  given  time  be  confined  within 
limits  which,  the  conditions  of  industry  and  the  character  of 
the  owners  of  wealth  being  what  they  are,  can  not  be  perma- 
nently extended  by  the  action  of  workmen,  then  it  follows 
that  the  scope  for  Trades-Union  action  is  proportionally  nar- 
rowed;  and  all  attempts  to  accomplish  a  permanent  increase 
of  wages  by  such  means,  beyond  what  the  unassisted  action  of 
supply  and  demand  would  ultimately  bring  about,  are  doom- 
ed beforehand  to  disappointment  and  failure*.  The  question, 
therefore,  of  the  limitation  of  the  Wngcs-fund  is  evidently  one 
of  paramount  importance  in  the  present  position  of  the  con- 
trover.«?y  between  labor  and  capital  in  this  country  ;  and  we 


LIMITS  OF  THE  WAGES-FUND.  2ir. 

should  approach  the  problem  with  all  the  care  and  circum- 
spection which  so  momentous  an  issue  demands. 

§  2.  And,  in  the  first  place,  I  need  scarcely  point  out  that 
there  are  at  all  times  certain  limits  to  the  possible  Wages-fund 
which,  if  not  strictly  physical  limits,  come  very  close  to  that 
character.  The  Wages-fund  of  a  country,  at  any  given  time, 
must,  at  all  events,  find  a  limit  in  the  total  wealth  of  the  coun- 
try at  that  time,  and  manifestly,  under  any  circumstances,  it 
must  fall  very  much  short  of  that  total ;  for,  in  order  to  main- 
tain the  stock  of  commodities  of  all  sorts  w^hich  in  any  civil- 
ized community  goes  to  support  the  laboring  j^opulation,  a  cer- 
tain large  proportion  of  the  general  wealth  must  exist  in  the 
form  of  fixed  capital  and  raw  material.  The  wealth  available, 
therefore,  for  the  remuneration  of  labor  can  not  at  the  utmost 
be  more  than  the  balance  which  remains  after  these  indispensa- 
ble requirements  have  been  provided  for,  under  pain  of  a  com- 
plete failure  of  the  fund.  These  are  what  we  may  describe  as 
the  physical  limits  of  the  Wages-fund,  and  they  are  obviously 
such  as  must  be  observed  under  all  forms  of  industrial  organi- 
zation, even  under  a  system  of  the  most  absolute  communism. 
But  the  question  I  wish  now  to  consider  is  whether,  within 
these  quasi  physical  limits,  there  are  not,  at  least  for  societies 
organized  as  ours,  and  resting  on  the  institution  of  private  prop- 
erty and  personal  freedom,  what  may  properly  be  called  eco- 
nomic limits — that  is  to  say,  limits  arising  from  the  action  of 
human  interests  operating  under  the  actual  circumstances  of 
man's  environment  in  the  world.  Now  the  principles  already 
established  in  this  work,  taken  in  connection  with  other  funda- 
mental truths  of  economic  science,  will,  I  think,  lead  us  to  the 
conclusion  that  such  limits  do  exist,  and  will  also  enable  us  to. 
perceive  the  character  of  the  obstacles  which  they  oppose  to 
the  indefinite  extension  of  the  Wages-fund. 

The  reader  has  already  seen  the  conditions  on  which  depend 


216  TBADES-UNIONISM.—I. 

the  investment  of  capital  in  productive  industr}',  and  the  cir- 
cumstances which  determine  its  distribution,  when  invested, 
among  the  several  instruments  of  production.  He  has  seen 
that  the  motive  to  its  investment  is  the  prospect  of  profit,  and 
that,  the  character  of  the  owners  of  wealth  being  given,  the 
strength  of  the  inducement  will  vary  as  this  prospect  varies. 
Such  being  the  fundamental  facts  on  which  the  accumulation 
and  investment  of  capital  depend,  there  exists  for  every  in- 
dustrial society,  as  Mr,  Mill  has  pointed  out,  a  certain  rate  of 
profit  which  is  the  lowest  that  will  suffice  to  call  the  accumu- 
lative principle  leading  to  the  investment  of  capital  into  action. 
This  lowest  rate  of  profit  will  be  different  for  different  commu- 
nities and  for  different  stages  of  civilization.  It  will  be  com- 
paratively high  where  the  accumulative  principle  among  the 
owners  of  wealth  is  weak,  since  here  the  inducement  will  need 
to  be  proportionally  strong,  and  low  where  that  principle  is 
strong.  But  under  all  circumstances  there  will  be  a  minimum 
rate,  below  which,  if  the  return  on  capital  fall,  accumulation, 
at  least  for  the  purpose  of  investment,  will  cease  for  want  of 
adequate  inducement.  Mr.  Mill  has  further  shown  that  in  all 
progressive  societies,  after  a  certain  stage  in  their  career  is 
reached — that  stage,  namely,  at  which  the  best  soils  and  the 
most  productive  natural  agents  of  all  kinds  have  been  brought 
into  requisition  for  the  purposes,  of  production — the  tendency 
of  profits  is  to  fall,  and  ultimately  to  approach  the  minimum 
which  exists  for  each  society.  This  tendency  is,  indeed,  con- 
stantly counteracted  by  the  progress  of  invention  and  improve- 
ment in  the  industrial  arts  (including  under  this  head  the  ex- 
tension of  the  field  for  division  of  labor  by  the  growth  of 
trade),  but  nevertheless  it  continues  to  operate,  and  on  the 
whole  prevails  against  the  opposing  forces.  With  every  in- 
crease of  capital,  this  stage  in  the  economic  growth  of  a  coun- 
try once  attained,  a  fall  in  the  general  rate  of  profit  occurs, 
unless  so  far  as  the  diminishing  productiveness  of  industry  is 


THE  MINIMUM  RATE  OF  PROFIT.  217 

compensated  by  these  incidents  of  progressive  societies,  until 
;it  length  capital  iii  its  growth  reaches  the  point  at  which  the 
rate  of  profit  is  at,  or,  to  borrow  Mr.  Mill's  expression,  within 
a  baud-breadth  of,  the  minimum.  Lastly,  Mr.  Mill  has  shown 
that  in  countries  in  which  capital  has  grown  to  this  point,  and 
among  such  countries,  pre-eminently  in  Great  Britain,  the  prin- 
ciple leading  to  accumulation  is,  as  a  rule,  always  strong  enough, 
not  merely  to  keep  the  aggregate  capital  of  the  country  up  to 
that  amount  at  which  profits  approximate  to  the  minimum,  but 
even  to  cause  it  to  exceed  this  amount;  the  proof  of  which 
lies  in  the  large  and  continuous  exportation  of  capital  which 
occurs  in  such  cases  for  investment  in  colonies  or  in  foreign 
states.  It  results  from  these  several  positions  that  the  amount 
of  capital  actually  invested  in  Great  Britain  and  in  countries 
similarly  circumstanced  is,  as  a  rule,  at  or  close  upon  its  max- 
imum— that  is  to  say,  as  great  as,  economically  speaking,  it  can 
be  in  the  actual  state  of  the  industrial  arts  and  of  general  trade. 
Such  is  the  doctrine  of  the  "tendency  of  profits  to  a  mini- 
mum," for  the  proof  of  which  I  must  refer  the  reader  to  Mr. 
Mill's  chapter  on  that  subject;*  and  I  have  now  to  ask  him  to 
consider  the  bearing  of  this  doctrine  upon  the  problem  we  have 
undertaken  to  discuss.  As  he  has  seen,  it  is  of  the  essence  of 
the  doctrine,  first,  that,  in  any  given  state  of  the  arts  of  indus- 
try and  of  trade,  the  quantity  of  capital  which  can  be  employ- 
ed in  a  countr}'  is  strictly  limited,  limited  by  those  conditions 
which  limit  the  inducement  to  save  and  invest — to  perform 
those  acts,  that  is  to  say,  which  constitute  the  source  and  spring 
from  which  capital  is  derived  and  fed ;  and,  secondly,  that,  in 
countries  which  have  attained  that  stage  in  their  economical 
development  which  England  has  long  ago  reached  and  passed, 
the  accumulation  of  capital  under  the  influence  of  the  ordinary 
motives,  is,  as  a  rule,  constantly  in  excess  of  the  amount  which 


*  ''Principles  of  I'oliiical  Economy,  "bool:  iv.,  ciiap.  iv. 


218  TRADES -UNIONISM.— I. 

can  be  invested  in  the  country  consistently  with  obtaining  the 
minimum  rate  of  profit.  These  things  being  so,  what  can  be 
the  effect  of  an  attempt  on  the  part  of  Trades-Unions  to  com- 
pel, by  pressure  upon  capitalists,  an  increase  of  the  Wages- 
fund?  Such  an  increase  can  only  be  accomplished  in  one  or 
other  of  two  ways — either  by  an  increase  of  the  total  capital 
invested,  or  by  a  change  in  its  distribution  among  the  several 
agents  of  which  it  consists,  in  favor  of  labor,  for  example,  by  a 
conversion  of  what  now  goes  to  maintain  machinery  to  the 
payment  of  wages.  But  either  of  these  courses  would  inevita- 
bly result  in  a  fall  of  profits,  and  profits  are  already  at  or  with- 
in a  hand-breadth  of  the  minimum.  It  is  true  that  the  field 
for  the  investment  of  capital  is  being  constantly  extended  in 
this  and  other  progressive  countries.  Every  step  in  the  prog- 
ress of  industrial  invention,  every  gain  in  the  efficiency  of 
labor,  every  new  market  opened  to  our  trade,  pushes  farther 
back  the  limit  set  by  the  minimum  of  profit,  and  creates  new 
room  for  the  investment  of  capital.  But  the  doctrine  we  have 
been  considering  shows  us  that  the  ordinary  motives  pressing 
upon  capitalists  are  always  sufficient,  of  their  inherent  strength, 
to  fill  up  the  room  thus  constantly  created  for  fresh  investment, 
and  do  in  fact  fill  it  up ;  and  this  being  so,  where  is  the  scope 
for  Trades-Union  action  in  enlarging  the  Wages-fund  ?  I  con- 
fess I  am  unable  to  see  how,  in  presence  of  these  considera- 
tions, founded  as  they  are  on  incontrovertible  facts,  the  larger 
pretensions  of  Trades-Unionism  can  be  sustained.  The  per- 
manent elevation  of  the  average  rate  of  wages — or,  what  comes 
to  the  same  thing,  the  permanent  elevation  of  the  rate  of  wages 
in  any  branch  of  industry  not  accompanied  by  an  equivalent 
fall  in  some  other  branch  or  branches — beyond  the  level  deter- 
mined by  the  economic  conditions  prevailing  in  the  country, 
is,  as  it  seems  to  me,  a  feat  beyond  its  power.  Such  is  the 
broad  general  conclusion  to  which  economic  principles  applied 
to  the  facts  of  the  case  appear  to  conduct  us. 


LIMITS  OF  ITS  POWER.  219 

§  3.  We  must  be  careful,  however,  not  to  strain  this  oon- 
chision  beyond  the  limits  which  its  terms  define.  The  readei- 
will  observe  that  it  applies  to  the  average  rate  of  wages,  as  a 
permanent  state  of  things,  and  further,  that  the  question  is  left 
open  as  to  the  possibility  of  accelerating  the  operation  of  eco- 
nomic conditions,  by  action  on  the  part  of  those  whom  they 
affect.  Now  it  will  be  found  that,  these  qualifications  of  the 
position  just  laid  down  duly  considered,  a  certain  scope  still 
remains  for  Trades-Union  action  on  the  rate  of  wages — a  cer- 
tain scope,  but  of  a  range  altogether  more  limited  than  that 
which  the  pretensions  of  those  bodies  to  control  the  labor  mar- 
ket commonly  assume. 

In  the  first  place,  it  is  not  inconsistent  with  the  general  con- 
clusion arrived  at  that  an  advance  of  wages  in  certain  depart- 
ments of  industry  should  be  effected  by  the  action  of  Trades- 
Unions  where  this  is  accompanied  by  an  equivalent  fall  in 
others;  and,  supposing  the  workmen  in  such  departments  of 
industry  had  it  in  their  power  to  exclude  the  competition  of 
outsiders,  it  is  quite  possible  that  an  advance  of  wages  so  ef- 
fected might  be  permanently  maintained.  Such  a  result  is  not 
only  a  perfectly  possible  achievement,  but  one  which  has  oc- 
casionally been  accomplished."-^     It  amounts,  however,  merely 

*  According  to  Mr.  Thornton,  tin's  h.is  hitlierto  been  the  nature  of  all  Trades- 
Union  victories,  and  must  be  so  until  Unionism  becomes  universal.  "In  a  coun- 
try commercially  stationary — in  which  national  wealtli  is  not  increasing — when  a 
permanent  advance  of  the  rate  of  wages  is  obtained  artificially  by  Unionist  action, 
there  must  needs  be  a  corresponding  lowering  of  wages  in  other  trades.  Even  in 
!i  country  commercially  progressive,  it  is  impossible  for  Unionism  to  raise  wages 
in  any  particular  trade  without  causing  the  demand  for  the  produce  of  other  trades 
to  be  less  than  it  wonlil  have  been,  or  without  equally  checking  the  demand  for 
labor  in  those  other  trades.  Whether  a  country  be  stationary  or  progressive,  an 
e.\ce])tionally  high  rate  of  wages  can  not  be  maintained  in  any  particular  trade, 
unless  the  workmen  of  all  other  trades  are  prevented  from  entering  that  particular 
trade,  and  endeavoring  to  get  the  same  rate.  Unionism  can  not  keep  up  the  ratr 
in  one  trade  without  keeping  it  down  in  others.     It  can  not  benefit  one  portion  ot 


220  TEADES-UXIOXISM.—I. 

to  a  change  in  the  distribution  of  the  Wages-fund,  while  its 
aggregate  quantity  is  left  unaltered;  and  for  the  present  it 
will  be  more  convenient  to  confine  the  discussion  to  the  power 
of  Trades-Unionism  in  relation  to  the  general  fund — its  power, 
that  is  to  say,  to  effect  an  advance  of  wages  by  a  positive  in- 
crease of  capital,  and  not  simply  by  drawing  off  capital  from 
fields  in  which  it  was  already  invested,  at  the  cost  of  the  la- 
borers in  those  fields. 

Confining  our  view,  then,  for  the  present  to  this  aspect  of 
the  case,  we  have  now  to  consider — Trades-Unionism  being,  as 
we  have  seen,  powerless  to  effect  a  permanent  increase  in  the 
average  rate  of  w^ages  beyond  what  the  economic  conditions 
of  the  country  permit — how  far  it  is  capable  of  modifying  the 
rate  for  a  time,  or  of  accelerating  an  advance  rendered  possible 
by  the  state  of  trade  and  industry,  but  still  pending  and  un- 
realized. 

It  is  obvious  at  once,  even  apart  from  experience,  that, 
where  workmen  have  the  power  of  combining,  it  will  always 
be  possible  for  them,  by  taking  advantage  of  particular  exi- 
gencies, to  compel  their  employers  to  a  temporary  advance  of 
wages.      For  example,  where   employers  have  bound  them- 


the  laboring  population  without,  during  a  period  of  stagnation,  injuring  the  re- 
mainder, nor  even  in  a  season  of  prosperity,  without  at  least  shutting  out  the 
bulk  of  the  laboring  population  from  the  advantages  secured  for  a  portion." 
("On  Labor,"  p.  310.) 

I  confess  I  am  quite  unable  to  reconcile  the  drift  of  this  passage  with  Mr. 
Thornton's  denial  of  the  existence  of  a  determinate  Wages-fund  ;  but,  not  to  dwell 
upon  this,  it  appears  to  me  that  the  inference  drawn  from  the  state  of  things  he 
describes,  namely,  that  as  Unionism  is  extended  its  advantages  will  be  proportion- 
ally eidarged,  until  finally,  becoming  universal,  they  will  represent  pure  gain  un- 
qualified by  any  set-ofF,  is  exactly  tlie  reverse  of  what  the  focts  warrant.  An  ad- 
vantage which  depends  upon  tiie  exclusion  of  otliers  can  not  but  be  impaired  by 
tiie  admission  of  any  of  the  excluded,  and  can  not  but  be  wholly  lost  by  the  ad- 
mission of  ail.  liut  I  liave  dealt  with  tliis  point  more  fully  in  a  later  ciiiiiJtcr, 
post  pp.  24G-248. 


PROVINCE  FOR  ITS  ACTION.  221 

selves  under  penalties  to  execute  certain  definite  work  within 
specified  limits  of  time,  it  is  evidently  possible  for  workmen, 
by  combination,  to  place  their  employers  in  the  alternative  of 
either  complying  with  their  demands  or  of  incurring  a  greater 
loss;  and  under  such  circumstances  a  strike,  it  may  be  as- 
sumed, will  be  successful,  so  far  as  the  immediate  aims  of  the 
workmen  are  concerned.  This,  if  an  extreme  case,  is  in  actual 
life  a  very  common  one ;  and  the  principle  on  which  the  suc- 
cess of  the  workmen  depends  has  a  much  wider  range  than 
that  of  time  contracts.  To  a  certain  extent  all  persons  who 
embark  their  means  in  business  are  at  the  mercy  of  those  on 
whose  co-operation  they  rely  for  carrying  their  plans  into  ef- 
fect; and  this  liability  to  be  injured  by  refusal  on  the  part  of 
others  to  co-operate  will  evidently  become  greater  in  propor- 
tion as  the  preliminary  outlay  incident  to  the  undertaking  is 
large.  A  capitalist,  for  example,  who  has  committed  himself 
to  an  industrial  enterprise  by  making  large  purchases  of  build- 
ing and  plant,  wherewith  to  carry  it  on,  must  find  laborers  to 
work  for  him,  or  suffer  heavy  loss;  for  either,  his  capital  ly- 
ing idle,  he  loses  the  interest  it  might  bring  him,  or,  if  he  at- 
tempts by  sale  or  otherwise  to  convert  it  into  other  forms,  it  is 
pretty  sure  to  be  largely  depreciated  in  the  process.  Under 
these  circumstances,  supposing  the  workmen  on  whom  he  re- 
lies to  strike  for  higher  wages,  and  that  he  has  reason  to  be- 
lieve that  they  possess  the  resolution  and  are  in  command  of 
funds  sufficient  to  enable  them  to  maintain  a  prolonged  strike, 
it  may  be  his  wisdom  to  concede  their  demands,  even  though 
the  result  should  be  not  merel}'  to  bring  his  2:>rofits  below  the 
minimum,  but  to  annihilate  them  altogether,  or  even  convert 
them  into  loss;  since  the  entire  cessation  of  his  business  for  so 
long  a  period  might  involve  him  in  still  greater  loss.  It  is  evi- 
dent, therefore,  that  workmen  have,  by  means  of  combination 
and  by  accumulating  sufficient  funds,  very  considerable  power 
of  acting  upon  the  rate  of  wages.     But  the  question  remains  as 


■i22  TEADES -UNIONISM.— I. 

to  the  ultimate  consequences  of  such  action ;  as  to  its  effect  upon 
the  workman's  well-beins',  takinsj  an  extended  view  of  his  in- 
terest.  To  determine  this  point,  we  must  consider  two  distinct 
states  of  industry  and  trade — one  where  the  business  of  the  coun- 
try is  in  its  normal  or  average  condition,  and  where  consequent- 
ly, in  old  countries  like  Great  Britain,  the  rate  of  profit  is  at  or 
close  upon  the  minimum  ;  the  other,  where  trade  is  exception- 
ally prosperous,  and  profits  may  be  assumed  to  be  considera- 
bly in  advance  of  the  minimum  rate.  Taking  the  former  case 
first,  what  will  be  the  definitive  result  under  those  circum- 
stances of  a  successful  strike  for  hio-her  washes  ?     The  rate  of 

O  O 

profit  having  been  previously  at  or  near  the  lowest  point  at 
which  there  is  an  adequate  inducement  to  invest  capital,  the 
action  of  the  workmen  has  forced  it  below  this  point.  As  has 
already  been  intimated,  capital  can  not,  except  at  great  loss, 
be  withdrawn  suddenly  from  industries  in  which  it  has  once 
been  embarked,  and  therefore  workmen  may  for  a  time  enjo}- 
the  fruits  of  their  success.  But  though  capital  can  not  be  with- 
drawn suddenly,  it  ma}^  be  withdrawn  by  degrees  —  at  the 
worst  by  the  simple  process  of  not  renewing  it  as  it  is  worn 
out.  And  this  is  what,  in  the  case  we  are  considering,  M^e  may 
confidently  assume  would  happen.  Empioj^ers  whose  capital 
is  bringing  them  a  rate  of  profit  below  what  (allowance  made 
for  risk  and  other  drawbacks)  they  might  obtain  from  its  in- 
vestment in  other  industries  or  in  other  places,  will  seize  ev- 
ery opportunity  that  offers  for  withdrawing  it  from  an  employ- 
ment so  unremunerative.  After  a  little  the  successful  work- 
men will  find  that  their  services  are  not  required,  and  will  be 
compelled  for  their  support  to  throw  themselves  on  the  general 
labor  market.  The  inevitable  result  must  be  a  fall  in  the  gen- 
oral  rate  of  wages  at  least  to  its  former  level — to  a  level,  that 
is  to  say,  whicli  is  consistent  witli  giving  to  capitalists  what 
they  conceive  to  be  an  adequate  return  upon  their  outlay. 
Tliis  is  the  least  unfavorable  consequence  which  could  ensue 


PROVINCE   I'OU  ITS  ACTION.  223 

I'rorn  the  success  of  a  compulsory  action  on  wages  where  the 
condition  of  trade  is  what  we  may  describe  as  quiescent.  Sup- 
posing, however,  that  proceedings  of  this  kind  were  not  mere- 
ly isolated  and  exceptional,  but  became  sufficiently  frequent  to 
be  looked  forward  to  by  capitalists  as  a  normal  incident  of  pro- 
ductive investment,  the  consequences  for  workmen  would  be 
much  more  serious  than  a  mere  return  to  the  former  state  of 
things.  The  constant  liability  to  a  sudden  reduction  of  profits 
Crom  such  causes  would  become  an  element  in  the  regular  cal- 
culation of  capitalists,  and  before  embarking  in  an  industrial 
undertaking  they  would  look  for  compensation  in  a  rate  of 
profit  high  enough  to  cover  such  risks.  In  other  words,  the 
action  of  Trades-Unions  in  forcing  up  wages  under  the  circum- 
stances in  question,  however  it  might  for  the  moment  raise 
wages  at  the  expense  of  profits,  would  have  for  permanent  con- 
sequence precisely  the  opposite  result;  for,  by  increasing  the 
risks  of  investment,  it  would  tend  to  raise  the  minimum  rate 
of  profit,  and,  in  proportion  as  it  did  so,  to  narrow  the  field 
for  the  employment  of  capital  in  the  country.  The  aggregate 
capital  being  less,  the  Wages -fund,  cceierls  imrihus^  would  be 
less,  and  unless  laborers  consented  to  reduce  their  numbers, 
the  general  rate  of  wages  would  fall. 

Such,  it  seems  to  rne,  must  be  the  inevitable  consequence  of 
frequent  and  systematic  attempts  to  force  up  the  rate  of  wages 
when  the  economic  conditions  of  the  country  do  not  war- 
rant a  rise ;  and  a  fortiori^  I  may  add,  these  disastrous  results 
would  be  only  more  certainly  realized,  if  this  policy  were  at- 
tempted in  a  depressed  condition  of  trade  when  profits  barely 
reached  the  necessary  level.  But  let  us  now  consider  how  the 
case  would  stand  supposing  the  demand  for  an  advance  to  oc- 
cur when  trade  is  exceptionally  prosperous.  Mechanical  in- 
ventions, we  may  suppose,  or  improved  processes,  have  cheap- 
ened production  ;  or  the  opening  of  new  markets  for  trade  has 
enabled  our  manufacturers  to  exchange  their  commodities  on 


224  TRADES-UNIONISM.— I. 

better  terms  with  foreign  countries.  Under  snch  circum- 
stances profits  may  advance  considerably  above  the  minimum  : 
and  the  question  arises,  what  is  the  scope  for  Trades-Union  ac- 
tion offered  by  a  contingency  of  this  kind.  We  have  already 
,  seen  that,  even  under  the  ordinary  conditions  of  trade,  it  is 
frequently  in  the  power  of  workmen,  by  skillfully  taking  ad- 
vantage of  the  position  of  their  employers,  to  force  up  wages 
above  the  actual  rate.  But  a  state  of  trade  in  which  profits 
were  sensibly  above  the  minimum  limit  would  obviously  be 
highly  favorable  for  such  operations.  For,  by  refusing  to 
work,  the  men  could  now  not  merely  inflict  the  same  loss  as 
before  on  their  masters,  but  could  compel  them  to  forego  the 
opportunities  of  reaping  the  unusual  gains  which  the  time  of- 
fered. There  can  be  no  doubt  at  all,  therefore,  that  under  such 
circumstances  well-concerted  Trades -Union  action  would  be 
capable  of  achieving  success.  Tliis,  however,  does  not  in  itself 
establish  the  wisdom  of  such  policy;  for  the  question  would 
remain,  whether  the  game  were  worth  the  candle;  whether 
the  results  attainable  by  this  course  would  compensate  for  the 
trouble  and  risk  involved  in  the  movement.  For  it  must  be 
remembered  that,  under  the  influence  of  the  ordinary  motives 
which,  we  have  seen,  govern  the  growth  of  capital,  the  state  of 
things  we  are  considering  would  act  as  a  powerful  incentive  to 
accumulation  and  investment.  An  increased  demand  for  labor 
would  sooner  or  later  spring  up,  and  ultimatel}''  an  advance  of 
wages  to  as  high  a  point  as  the  actual  state  of  things  permitted. 
This  being  so,  it  may  be  asked  whether  the  action  of  Trades- 
Unions,  mischievous  in  the  case  we  last  considered,  would  not 
here  be  superfluous.  Now  the  answer  to  this  question  must,  I 
think,  be  in  the  negative.  The  workman,  no  doubt,  is  interest- 
ed in  the  final  result,  but  he  is  also  intcrcstid  in  its  speedy  re- 
alization ;  and- the  process  by  which  the  fruits  of  exceptionally 
prosperous  trade  issue  in  an  advance  of  wages  is  a  circuitous 
one,  and  generally  covers  some  considerable  period  of  time. 


PROVINCE  FOB  ITS  ACTION.  235 

Employers  as  a  class,  we  may  take  for  granted,  will  not  propose 
an  advance  of  wages  except  under  the  stress  of  competition,  and 
before  competition  becomes  actually  operative  the  new  capital 
may  lie  for  some  time  upon  the  market,  in  the  "floating"  con- 
dition, seeking  investment,  but  not  at  once  finding  it.  Even 
after  investment  has  been  found,  preliminary  arrangements 
have  to  be  made,  and  a  considerable  time  may  elapse  before 
the  new  demand  for  labor  is  practically  felt.  Throughout  this 
period  wages,  in  the  absence  of  external  pressure,  may  remain 
absolutely  unaffected,  and  laborers  may  be  excluded  from  all 
share  in  the  prosperity  of  which  the  entire  fruits  are  appro- 
priated by  their  employers.  If,  then,  laborers  have  the  power, 
as  we  have  seen  they  have,  of  shortening  or  of  annihilating  al- 
together this  interval,  why  may  they  not  use  it?  It  seems  to 
me  that  there  is  here  a  perfectly  legitimate  field  for  Trades- 
Union  action.  The  state  of  trade  being  such  as  to  permit  an 
advance  of  wages.  Trades -Unionism,  using  its  powers  judi- 
ciously, may  determine  capital  at  once  toward  those  issues 
which,  under  the  influence  of  the  ordinary  motives  governing 
industrial  investment,  it  would  indeed  in  any  case  ultimately 
reach,  A  distinct  and  substantial  gain  may  thus  be  secured 
for  labor  without  encroaching  on  the  indispensable  margin  for 
the  remuneration  of  capital,  and  without  impairing  any  of  those 
conditions  on  which  its  own  permanent  well-being  depends.* 

It  results  from  the  foregoing  considerations  that  the  action 
of  Trades-Unions,  directed  toward  raising  the  rate  of  wages  by 
combination  among  w<jrkmen,  may  be  hurtful  or  beneficial  ac- 
cording to  circumstances.  The  practical  utilit}',  therefore,  of 
this  mode  of  action  will  depend  upon  the  ability  of  those  who 
control  the  conduct  of  these  bodies  to  discriminate  the  states  of 

*  The  history  of  the  Newcastle  engineering  strike  is  instructive.  It  was  in  that 
case  admitted,  on  the  side  of  the  masters,  that  tlie  conditions  of  trade  from  the 
beginning  permitted  an  advance  of  wages ;  yet  no  advance  was  proposed  till  the 
pressure  of  Trades-Unionism  was  brought  to  bear.  i 

15 


\y 


•  226  TRADES-  UNIONISM.—!. 

the  market  in  •whicli  action  may  be  taken  with  advantage  from 
those  in  which  it  can  onl}^  be  productive  of  harni.  It  thus 
becomes  matter  of  deep  interest  to  know  if  the  working-class 
leaders  possess  this  ability  or  may  be  expected  to  acquire  it. 

And  here  I  touch  a  point  on  which  I  should  not  be  justified 
in  speaking  otherwise  than  with  extreme  diffidence.  I  fear  it 
must  be  admitted  that,  up  to  the  present,  the  competency  of 
Trades-Union  leaders  to  form  a  correct  judgment  on  the  state 
of  trade,  even  in  the  particular  departments  with  which  they 
each  happen  to  be  practically  conversant,  and  to  decide  upon 
the  seasonableness  of  a  demand  for  increased  wages,  must  be 
considered  as  at  least  problematical.  The  temporary  success 
of  a  strike  does  not  necessarily  prove  its  wisdom  ;  but  the  fail- 
ure of  a  strike,  immediate  or  ultimate,  is  decisive  evidence  that 
it  ought  never  to  have  been  undertaken ;  and  hitherto  unsuc- 
cessful strikes  have  been  extremely  numerous. 

"  The  most  i^rotracted  strikes  (says  Mr.  Brassey)  in  wliicli  the  working- 
men  have  been  engaged  have  generally  taken  phice,  not  for  the  purpose 
of  securing  an  advance  of  wages,  but  for  the  jDurpose  of  resisting  a  fall. 
Resistance  to  a  proposed  reduction  was  the  cause  of  the  engineers'  strike 
in  1853;  of  the  strike  at  Preston  in  1853  ;  of  the  strike  in  the  iron  trade 
in  1865;  and  of  the  strike  of  the  colliers  at  Wigan  in  1868.  In  each  of 
these  cases  the  masters  had  found  it  necessary,  in  consequence  of  the  de- 
pressed state  of  trade,  to  reduce  the  rate  of  wages ;  but  the  men,  ignor- 
ing the  circumstances  of  the  trade,  and  looking  only  to  what  they  be- 
lieved to  be  a  degradation  of  their  jjosition  as  workmen,  refused  to  ac- 
cept the  reduction.  They  therefore  went  out  on  strike ;  but,  after  a  pro- 
tracted struggle,  were  compelled  to  accept  the  original  proposal  of  their 
employers The  leaders  in  several  protracted  strikes  have  exhib- 
ited a  melancholy  ignorance  of  the  state  of  their  own  trade,  and  even  of 
the  market  value  of  the  goods  in  the  production  of  which  they  are  en- 
gaged. ITow  much  suffering  might  have  been  spared  to  the  working- 
classes,  if  they  had  but  known,  before  they  engaged  in  a  hopeless  strug- 
gle, the  true  merits  of  their  case  I  I  was  once  present  at  a  meeting  of 
employers  during  a  large  strike  in  the  coal  trade.  I  had  the  means  of 
knowing  that  the  wages  which  had  been  offered  were  the  hi<>hest  which 


rnonxcE  fob  its  action.  227 

the  employers  could  uflord  to  pay,  and  that  the  markets  were  so  over- 
stocked that  it  was  a  positive  advantage  to  suspend  the  working  of  the 
pits  for  a  time.  But  the  facts  which  I  had  tlie  means  of  knowing  were 
apparently  unknown  to  the  miners ;  and  it  was  indeed  lamentable  to  see 
tlie  hard-earned  accumulations  of  many  years  exhausted  in  an  obstinate 
resistance  to  a  reduction  of  wage,  which  had  not  been  proposed  by  the 
employers  until  it  had  been  forced  upon  them  by  the  unfavorable  condi- 
tion of  their  trade."* 

Nevertheless,  I  think  there  is  evidence  to  show  that  Union- 
ists are  gathering  wisdom  with  experience,  and  this  Mr,  Bras- 
sey  admits.  The  great  majority  of  recent  strikes  have  been 
successful.  But  it  is  not  so  much  the  success  of  recent  strikes, 
as  the  manner  in  which  the  success  has  been  achieved — the 
moderation  and  good  sense  with  which  for  the  most  part  the 
demands  of  the  men  have  been  put  forward  and  supported, 
and  the  inereasinsr  indications  in  their  various  manifestoes  of  a 
growing  comprehension  of  the  true  conditions  of  the  problem 
— that  constitutes  the  most  solid  ground  of  hope.  I  would 
point  in  particular  to  the  Newcastle  engineers'  strike  of  the 
year  J.871  as  an  occasion  when  these  qualities  were  manifested 
in  an  eminent  degree.  Certainly,  to  my  apprehension  as  a  dis- 
interested spectator,  the  conduct  of  the  men  in  that  struggle 
contrasted  favorabl}''  with  that  of  their  employers.  But  in  or- 
der to  convert  Trades-Unionism  into  an  agency,  not  merely 
capable  now  and  then  of  achieving  an  advance  of  wages  by  a 
couj)  de  main,  while  on  other  occasions  it  leads  its  supporters 
into  ruinous  contests,  from  which  they  only  emerge  enfeebled 
and  impoverished,  to  accept  worse  terms  than  they  had  pre- 
viously refused — in  order  to  convert  it  into  an  agency  perma- 
nently and  constantly  beneficent,  workmen  must  learn  to  rec- 
ognize more  distinctly  than  they  have  yet  done  the  essential 
conditions  of  success;  and  not  merely  this,  but  also  to  adopt 

*  "Work  and  Wages,"  pp.  6,  7,  and  10,  11. 


228  TEA  DES  -  UXIOXISM.—I. 

the  needful  means  for  determining  in  each  case  as  it  arises 
how  far  these  conditions  are  fulfilled.  In  other  words,  Trades- 
Unions  must  frankly  recognize  the  impossibility  of  forcing 
profits  permanently  below  that  rate  which  capitalists  regard, 
and  show  by  their  conduct  that  they  regard,  as  only  an  ade- 
quate return  upon  their  outlay ;  and  they  must  organize  the 
means  for  obtaining  sufficient  and  trustworthy  information  re- 
specting the  actual  state  of  trade,  with  a  view  to  determine 
whether  profits  are  or  are  not  in  advance  of  this  minimum 
level.  It  has  been  said,  indeed,  that  workmen  can  not  know 
the  state  of  profits  in  a  trade  so  long  as  they  are  excluded  from 
access  to  their  employers'  books,  and  that  this  is  a  privilege 
which  will  never  be  conceded  them.  But  for  the  purposes  of 
Trades-Unionism  I  can  not  see  that  any  such  detailed  knowl- 
edge as  might  be  obtained  by  inspection  of  the  books  of  em- 
ployers is  necessary.  The  object  in  view  is  not  to  know  the 
precise  gains  of  particular  emploj^ers,  which  may  depend  quite 
as  much  upon  individual  skill  and  management  as  upon  the 
general  circumstances  of  the  trade,  but  whether  the  circum- 
stances of  the  trade,  as  a  whole,  are  such  as,  with  average  man- 
agement, to  admit  of  more  than  the  usual  gains.  The  data  for 
this  lie  in  a  knowledge  of  the  state  of  prices,  at  different  pe- 
riods, alike  of  the  finished  article  and  of  the  raw  material,  of 
the  conditions  of  production  as  regards  mechanical,  chemical, 
or  other  facilities,  and  of  the  greater  or  less  accessibility  of 
markets.  These  are  circumstances  an  adequate  knowledge 
of  which  is  quite  within  reach  of  Trades-Unions,  if  only  the 
proper  means  be  taken  to  obtain  it;  and  Mr.  Brassey  in  the 
following  passage  gives  an  exam})le  of  what  these  means 
should  be: 

"  It  is  not  the  less  essentiiil  to  keep  a  watcliful  eye  on  all  that  is  taking 
place  abroad.  The  organization  of  Trades-Unions  might  be  utilized  for 
this  important  purjjose.  The  resources  of  a  joint  ijurse  should  afford  the 
means  of  sending  delegates  abroad,  for  -svhom  opportunities  ought  to  be 


PROVISCE  FOR  ITS  ACTION.  229 

provided  of  studj'ing  foreign  languages,  and  whose  duty  it  should  be  to 
keep  the  artisans  of  England  closely  informed  of  the  fluctuations  in  the 
activity  of  trade  and  the  reward  of  labor  in  the  countries  in  which  they 
resided.  Trades-Unions  can  not  in  the  long  run  materially  influence  the 
rate  of  wages,  but  there  are  many  valuable  services  which  they  can  ren- 
der ;  and  none  would  be  more  practically  useful  than  the  frequent  publi- 
cation of  faithful  reports  on  the  state  of  the  labor  market  from  well-placed 
observers  on  the  Continent."* 

I  believe  the  influence  of  Trade-Unionism  organized  thus 
with  a  deliberate  purpose  of  collecting  and  diffusing  sound  in- 
formation among  its  supporters  would  be  in  more  ways  than 
one  largely  beneficial.  The  collection  of  the  necessary  facts, 
their  careful  study  and  examination,  and  the  discussions  to 
which  these  would  lead,  combined  with  the  sense  of  responsi- 
bility attaching  to  the  formation  of  opinions  on  which  practical 
issues  of  the  gravest  import  depended,  would  in  themselves  be 
for  workmen  a  means  of  practical  education  of  the  highest  val- 
ue. But  the  more  obvious  advantages  of  this  course  of  action 
would  lie  in  its  direct  consequences — in  the  immense  saving 
which  would  result  both  to  men  and  masters  in  preventing 
abortive  strikes.  Indeed  the  adoption  of  such  a  policy  by 
Trades  -  Unions  would  powerfully  tend  to  the  cessation  of 
strikes  altogether — at  least  for  the  purpose  of  effecting  an  ad- 
vance of  wages — by  rendering  them  unnecessary.  It  is  not 
probable  that,  when  employers  came  to  understand  that  work- 
men had  mastered  the  real  facts  of  the  situation  and  knew  the 
strength  and  weakness  of  their  reciprocal  positions,  the  refusal 
of  reasonable  demands  would  be  long  persisted  in.  Each  side 
would  perceive  that  both  alike  were  cognizant  of  what  the  cir- 
cumstances of  the  case  permitted,  of  what  was  feasible,  and  of 
what  was  not  so ;  and  neither  would  probably  seek  to  strain  its 
pretensions  beyond  the  limit  thus  mutually  recognized, 

*  "  Work  and  Wages,"'  pp.  14,  15. 


230  TRADES-VNIONISM.—I. 

§  4.  The  foregoing  conclusions  as  to  the  power  of  combina- 
tions of  workmen  to  effect  an  advance  in  the  rate  of  wages  may 
seem  to  be  applicable  only  to  old  countries,  in  which,  like  our 
own,  the  rate  of  profit  is  normally  at  or  close  upon  the  mini- 
mum point,  and  from  which,  consequently,  capital  is  from  time 
to  time  flowing  off"  into  foreign  investment.  In  countries  like 
the  United  States,  in  which  the  rate  of  profit  is  still  far  above 
the  minimum,  and  which,  instead  of  lending  capital  to  foreign 
countries,  are  themselves  habitual  recipients  of  their  redundant 
supplies,  it  will  perhaps  be  thought  that  the  arguments  which 
have  been  used  would  cease  to  have  any  force.  It  can  not  be 
denied  that  the  same  obstacles  which  set  limits  to  Trades-Union 
action  in  the  Old  World  do  not  exist  in  the  New.  Never- 
theless, I  apprehend  that  though  the  obstacles  may  not  be  the 
same,  the  limitations  on  such  action  will  be  found  in  effect  to 
be  scarcely  less  real  there  than  with  us.  If,  indeed,  capitalists 
could  be  reduced  to  the  alternative  of  either  conceding  the  de- 
mands of  Trades-Unions,  or  being  deprived  altogetiier  of  the 
opportunity  of  investing  their  wealth,  one  can  imagine  that, 
rather  than  accept  the  latter  course,  they  might  consent  to  so 
great  an  advance  of  wages  as  would,  under  the  actual  condi- 
tions of  productive  industry,  issue  in  a  decline  of  the  returns 
on  capital  considerably  below  the  level  at  which  profits  in  the 
United  States  now  ordinarily  stand;  and  it  is  possible  that  the 
change  in  distribution  thus  effected  might  be  permanent.  I 
say  this  would  be  a  conceivable  result,  if  capitalists  could  be 
reduced  to  the  alternative  just  stated.  But  in  a  country  of 
such  vast  magnitude  as  the  United  States,  covering  as  it  does 
the  greater  portion  of  a  continent,  what  grounds  are  there  for 
believinof  that  Trades-Union  organization  can  ever  become  at 
once  so  complete  and  so  all-embracing  as  to  be  capable  of  pre- 
scribing terms  such  as  these?  For  my  part,  I  find  it  impossible 
to  contemplate  such  a  consummation  as  a  condition  of  things  to 
be  taken  into  serious  account.     Within  a  limited  area — with- 


IN  NE  W  CO  UNTRIES.  Zi  1 

in  perhaps  a  single  State — one  can  imagine  Trades-Unionism 
absolute;  but,  limited  to  a  single  State,  or  even  to  half  a  dozen 
States,  the  attempt  to  enforce  its  decrees  in  the  sense  described 
would  issue,  not  in  raising  the  rate  of  wages  generally  over  the 
American  continent,  or  even  in  raising  it  permanently  within 
the  State  or  States  in  which  the  organization  was  dominant, 
but  simply  in  driving  capital  from  one  State  to  another — in 
sending  it  from  New  England  or  New  York  to  Illinois,  Mis- 
souri, or  California;  and  workmen  would  find  their  prize  es- 
caping them  just  as  they  fancied  they  had  grasped  it.  In  this 
way,  in  the  New  World  no  less  than  in  the  Old,  the  larger  aims 
of  Trades-Unionism  must,  as  I  apprehend,  find  defeat.  Under 
all  circumstances  the  facilities  of  escape  open  to  capital  are  too 
great  to  make  it  possible  to  hem  it  in,  and  so  to  compel  a  sur- 
render at  discretion ;  and  we  shall  have  no  need  to  modify  the 
conclusions  at  which  we  have  arrived  even  in  applying  them 
to  a  country  in  its  economical  circumstances  and  development 
so  widely  separated  from  our  own  as  the  United  States. 

§  5.  As  the  reader  has  seen,  the  utmost  power  which  I  am 
disposed  to  concede  to  Trades-Unions  over  wages,  where  they 
seek  their  ends  by  compelling  a  positive  increase  of  investment, 
is  that  of  accelerating  an  advance,  already,  so  to  speak,  in  the 
air,  and  which  would  come  in  the  end  without  their  interven- 
tion. Where  strikes  have  been  permanentl\-  successful,  where 
they  have  not  merely  gained  to-day  what  has  been  lost  to-mor- 
row, but  have  issued  in  a  permanentl}'  improved  condition  of 
the  workmen,  I  believe  the  explanation  of  their  success  will 
always  be  found  in  a  state  of  trade  exceptionally  prosperous 
which  would  in  anv  case  before  long  have  attracted  an  increase 
of  capital,  and  resulted  in  an  enlarged  demand  for  labor.  But 
this  explanation  of  the  success  of  strikes  is,  I  find,  strenuously 
repudiated  by  Mr.  Thornton,  who  regards  Trades-Unionism  as 
an  agency  capable  not  merely  of  raising  wages  in  anticipation 


232  TRADES-UNIONISM.— I. 

of  the  ordinary  commercial  influences,  but  of  permanently  sus- 
taining them  at  a  level  higher  than  they  would  without  its  ac- 
tion ever  have  attained,  and  in  conformity  with  this  view  is 
disposed  to  attribute  the  advance  of  wages  which  within  twenty 
years  has  occurred  in  most  branches  of  industry  to  Trades-Un- 
ion action  as  its  proper  cause.  I  confess  Mr.  Thornton's  ar- 
gument on  this  point  is  to  me  singularly  unsatisfactory.  He 
writes : 

"  Of  course  it  is  open  to  any  one  to  question  whetlier  the  enhancement 
of  labor's  remuneration  which  has  thus  been  going  on  at  both  ends  is 
due  to  the  influence  of  Trades-Unions,  and  whetlier  it  would  not  have 
taken  place  equally  if  the  price  of  labor  had  been  left  to  find  its  own 
level  without  extraneous  interference.  The  questioner  here,  however, 
may  very  properly  be  left  to  answer  himself,  as  he  may  satisfactorily  do, 
by  proceeding  to  inquire  how  often  any  portion  of  the  enhancement  re- 
ferred to  has  been  volunteered  by  the  masters,  and  how^  often  it  has  been 
only  yielded  to  solicitation  with  force  in  the  background.  He  will  find 
the  instances  of  masters  spontaneously  raising  wages  to  be  about  as  nu- 
merous as  those  of  workmen  conscientiously  believing  themselves  to  be 
overpaid  and  coming  forward  to  insist  that  their  wages  should  be  re- 
duced."* 

Mr.  Thornton  apparently  is  unable  to  conceive  a  middle 
term  between  "volunteering"  an  advance,  and  "yielding  to 
solicitation  with  force  in  the  background;"  as  if  it  were  not 
the  essence  of  his  opponent's  case  that  there  is  this  middle 
term — to  be  found  in  those  economic  influences  distinct  alike 
from  mere  benevolence  and  from  coercion  from  without,  which 
issue  in  increased  competition  for  labor,  and  as  a  consequence 
an  advance  in  its  price.  I  commend  to  Mr.  Thornton  the  fol- 
lowing facts  supplied  by  Mr.  Brasscy  : 

"In  the  famous  engine-building  establishment  at  Creuzot,  founded  by 
the  father  of  Mr.  ('harles  Manljy,  10,000  persons  are  now  employed,  and 
the  annual  expenditure  in  wages  amounts  to  £400,000.     Mechanics  were 

*  "On  Labor," pp.  257,  258. 


CAPITALISTS  IN  COMBINATION.  233 

paid,  when  the  establishment  was  first  created,  at  the  rate  of  2^-  francs  a 
daj'.  At  the  present  time  none  receive  less  than  5  francs  a  day.  Be- 
tween 1850  and  1866  the  mean  rate  advanced  from  2s.  to  2s.  lid.  per  head, 
or  thirty-eight  per  cent.,  and  some  men  earned  fi'om  6s.  8fZ.  to  8s.  4(Z.  per 

ilay Compare  what  has  occurred  in  this  country  with  what  has 

taken  place  at  ]\1jM.  Schneider's  at  Creuzot At  MM.  Schneider's, 

icithout  the  assistance  of  a  Trades-  Union,  the  working-people  have  obtain- 
ed, during  the  last  seventeen  years,  an  augmentation  of  wage  of  thirty- 
eight  jier  cent.  In  England,  in  the  corresj^onding  i^eriod,  the  most  pow- 
erful of  all  the  Trade  Societies,  with  an  accumulated  fund  of  £149,000, 
has  found  it  impossible  to  secure  any  increase  in  the  earnings  of  its  mem- 
bers."* 

How  will  Mr.  Thornton  explain  the  advance  of  wages  at 
Creuzot?  Trades-Union  pressure  not  being  there,  will  he  refer 
it  to  the  spontaneous  benevolence  of  the  iron-masters  ?  A  lit- 
tle reflection  will  probably  suggest  to  him  a  means  of  escape 
from  his  own  dilemma, 

§  6.  The  power  of  workmen  to  compel  by  combination  an 
advance  of  wages  has  generally  been  considered  as  more  or 
less  an  open  question ;  but  that  capitalists  possess  the  corre- 
sponding power  of  keeping  wages  down  by  combination  has, 
for  the  most  part,  been  taken  for  granted.  In  a  well-known 
passage  Adam  Smith  observes  that  employers  are  in  a  perma- 
nent conspiracy  to  keep  wages  down,  and  the  context  certainly 
implies  the  writer's  belief  that  the}'-  are  generally  successful  in 
this  object.  Nevertheless  I  must  venture  to  question  the  as- 
sumption, even  though  supported  by  Adam  Smith's  authority, 
I  hold  that,  at  least  in  countries  in  which  the  industrial  and 
commercial  spirit  is  strong,  the  power  of  capitalists  by  com- 
bination to  depress  wages  or  to  keep  them  down  is  not  a  whit 
more  real  than  that  of  workmen  by  similar  means  to  force 
them  up.     Either  may,  no  doubt,  effect  their  object  for  a  time, 

*  "Work  and  Wages, "pp.  loO-lGl. 


234  TRADES-UNIONISM.— I. 

but  neither,  as  I  believe,  cun  be  permanently  successfal.  The 
grounds  of  this  opinion  will  be  apparent  to  those  who  have 
followed  the  argument  by  which  in  a  former  chapter  I  have 
endeavored  to  prove  the  "  determination  "  toward  the  Wages- 
fund  of  a  certain  portion  of  the  national  wealth.*  It  is  quite 
true,  no  doubt,  that  capitalists,  as  possessors  of  wealth,  have 
both  the  physical  and  the  legal  power  of  emplojnng  it  as  they 
please.  They  may,  if  they  choose,  withdraw  all  their  capital 
from  investment  and  squander  it  in  unproductive  consumption, 
or,  for  that  matter,  sink  it  in  the  sea;  and  the  effect  of  such 
proceeding  on  their  part,  if  this  course  were  extensively  adopt- 
ed, would  undoubtedly  be  to  depress  wages  in  the  country  for 
a  considerable  period  of  time.  But  I  apprehend  the  real  ques- 
tion is,  not  whether  capitalists  have  the  physical  or  legal  power 
of  doing  such  things,  but  whether,  their  character  being  such 
as  it  is,  it  is  morally  possible  for  them  to  adopt  these  or  any 
other  effectual  expedients  for  accomplishing  the  object  they  no 
doubt  much  desire.  The  whole  issue,  as  I  conceive  it,  turns 
upon  the  character  of  capitalists  as  a  class,  and  more  particu- 
larly on  the  balance  within  them  of  two  qualities  of  mind — on 
the  one  hand,  the  strength  of  the  accumulative  propensity,  and, 
on  the  other,  the  taste  for  luxurious  enjoyment,  by  which  the 
former  is  constantly  counteracted.  Supposing  these  two  quali- 
ties to  be  so  adjusted  in  the  owners  of  wealth  in  this  country 
that  the  prospect  of  a  certain  rate  of  profit,  say  ten  per  cent., 
suffices  to  cause  a  certain  proportion  of  the  whole  national 
wealth  to  be  turned  toward  productive  investment,  this  propor- 
tion will  be  turned  to  this  destination.  It  is  true,  indeed,  that 
those  who  thus  employ  their  wealth  would  be  very  glad  to  ob- 
tain from  it  a  larger  return  than  they  are  likely  to  receive,  and 
not  a  few  would  be  only  too  ready,  if  they  had  the  power,  to 
force  down  the  rate  of  wages  with  this  view.     But  this  is  pre- 


Ante,  pp.  184-187. 


CAPITALISTS  IN  COMBINATION.  235 

cisely  what  they  can  not  do  consistently  with  gratifying  the 
dominant  propensity  which,  under  the  temptation  of  a  cer- 
tain rate  of  profit,  draws  them  toward  productive  investment. 
Thus,  supposing  a  group  of  employers  to  have  succeeded,  as 
no  doubt  would  be  perfectly  possible  for  them,  in  temporarily 
forcing  down  wages  by  combination  in  a  particular  trade,  a 
portion  of  their  wealth,  previously  invested,  would  now  be- 
come free  —  how  would  it  be  employed?  I  have  already 
traced  the  consequences  of  such  an  occurrence,  and  need  not 
weary  the  reader  by  repeating  the  deduction  here.  Suffice  it 
that,  though  it  is  impossible  to  say  what  might  be  the  course 
adopted  in  particular  instances — unless  we  are  to  suppose  the 
character  of  a  large  section  of  a  community  to  be  suddenly 
changed  in  a  leading  attribute,  the  wealth  so  withdrawn  from 
wages  would,  in  the  end,  and  before  long,  be  restored  to  wages. 
The  same  motives  which  led  to  its  investment  would  lead  to 
its  re-investment,  and,  once  re-invested,  the  interests  of  those 
concerned  would  cause  it  to  be  distributed  among  the  several 
elements  of  capital  in  the  same  proportions  as  before.  In  this 
way  covetousness  is  held  in  check  by  covetousness,  and  the 
desire  for  aggrandizement  sets  limits  to  its  own  gratification. 
My  conclusion  is  that,  though  combination,  whether  employed 
by  capitalists  or  by  laborers,  may  succeed  in  controlling  for  a 
time  the  price  of  labor,  it  is  utterly  powerless,  in  the  hands  of 
either,  to  effect  a  permanent  alteration  in  the  market  rate  of 
wages  as  determined  by  supply  and  demand. 

§  7.  Throughout  the  foregoing  discussion  it  has  been  con- 
stantly assumed  that  an  advance  of  wages  involves  as  a  con- 
sequence, cceten's  paribus,  a  fall  of  profits.  I  beg  to  call  the 
reader's  attention  to  the  condition  here  presupposed ;  for  I 
observe,  in  some  recent  publications  in  which  the  relation  of 
profits  to  wages  is  discussed,  that  there  is  an  entire  omission 
on  the  part  of  the  writers  to  say  whether,  in  challenging  the 


236  TEADES-UXIONISM.—I. 

doctrine  just  stated,  they  understand  it  as  subject  to,  or  irre- 
spective of,  this  qualification.  Mr.  Brassey,  for  example,  de- 
votes a  chapter  to  prove  that  "the  cost  of  labor  can  not  be 
determined  by  the  rate  of  wages;"  and  this  enunciation  is 
characterized  by  Mr.  Harrison  in  the  Fortnightly  Revieio  as  a 
"striking  law  of  industry,  which  the  book  before  us  boldly 
formulates  and  completely  proves,"  and  he  proceeds  to  con- 
trast it  with  the  "professorial  dicta  of  so-called  economists, 
based  on  the  assumption  that  high  wages  inevitably  imply 
dear  goods  and  low  profits."  That  any  one  ever  maintained 
that  the  cost  of  labor,  prices,  or  profits  were  determined  simply 
by  the  rate  of  wages  irrespective  of  the  efficiency  of  the  labor,  is 
what,  I  own,  I  find  it  hard  to  believe;  and  until  Mr.  Harrison 
tells  us  who  the  economists  are  that  maintain  this  enlightened 
view — as  I  have  never  myself  happened  to  meet  with  a  speci- 
men of  the  class  either  in  the  flesh  or  in  print — I  shall  be  dis- 
posed to  regard  them  as  mythical  entities  evolved  from  the 
moral  consciousness  of  writers  more  anxious  to  refute  than  to 
understand  Political  Economy.  On  the  other  hand,  I  find  it 
almost  equally  difficult  to  suppose  that  either  Mr.  Brassey  or 
Mr.  Harrison  would  advisedly  maintain,  on  the  assumption  that 
the  efficiency  of  labor  is  a  constant  condition^  that  the  cost  of  labor, 
and,  as  depending  on  it,  the  rate  of  profit,  are  not  determined 
by  the  rate  of  wages.  In  truth,  it  is  prett}'  clear  that  the  en- 
tire controversy  on  this  subject  has  arisen  from  some  people 
not  taking  the  trouble  to  understand  what  other  people  say. 
Eicardo,  for  example,  has  laid  it  down  that  profits  are  inverse- 
ly as  w^ages,  but  any  tolerably  careful  student  of  Eicardo 
would  see  that  by  wages  he  meant  "proportional  wages" — 
that  is  to  say,  the  laborer's  share  of  the  product,  or,  if  wages  in 
the  ordinary  sense,  then  that  the  statement  was  to  be  received 
subject  to  the  condition  that  the  efficiency  of  labor  remained 
the  same.  Eicardo,  however,  has  not  been  fortunate  in  finding 
careful  students;  and  scores  of  writers  who  have  undertaken 


PROFITS  AND  WAGES.  237 

to  refute  liis  doctrine  have  in  reality  refuted  merely  their  own 
misconception  of  it.  And  what  in  effect  is  this  "striking  law 
of  industry,"  now  for  the  first  time,  according  to  Mr.  Harrison, 
"boldly  formulated  and  completely  proved,"  and  which  puts 
to  shame  "  the  professorial  dicta  of  so  -  called  economists  ?" 
Why  simply  this,  that  it  often  pays  better  to  employ  a  good 
workman  at  high  wages  than  an  inferior  one  at  low.  The  fact 
is  indubitable,  but  why  it  should  be  called  "  a  striking  law  of 
industry  "  rather  than  the  most  common  of  industrial  common- 
places, still  more  why  it  should  be  represented  as  a  conclusive 
refutation  of  all  that  economists  have  written  on  the  relation 
of  wages  to  profits,  is  what  I  must  confess  myself  wholly  at  a 
loss  to  discover. 

It  is  possible,  indeed,  that  the  language  I  have  quoted  may 
refer,  not  to  the  perfectly  sound  though  somewhat  trite  max- 
im, that  efficient  labor  is  often  worth  more  than  inefficient, 
but  to  a  doctrine  suggested,  rather  than  "  boldly  formulated," 
in  the  chapter  under  consideration.  In  a  passage  headed 
"  Uniform  Cost  of  Labor,"  Mr.  Brassey  writes  as  follows : 
"High  wages  do  not  necessarily  imply  dear  labor,  just  as,  on 
the  other  hand,  low  wages  do  not,  of  necessity,  make  labor 
cheap.  On  my  father's  extensive  contracts,  carried  on  in  al- 
most every  country  of  the  civilized  world  and  in  every  quarter 
of  the  globe,  the  daily  wage  of  the  laborer  was  fixed  at  widely 
different  rates ;  but  it  w\as  found  to  be  the  almost  invariable 
rule  that  the  cost  of  labor  was  the  same — that  for  the  same 
sum  of  money  the  same  amount  of  work  was  everywhere  per- 
formed. Superior  skill,  extra  diligence,  and  a  larger  devel- 
opment of  ph3^sical  power,  will  often  compensate  the  employer 
who  finds  himself  obliged  to  pay  higher  wages  than  his  com- 
petitors."* 

Let  me  here  say  that  I  have  not  the  slightest  disposition  to 


*  "Work  and  Wages,"  pp.  74,  75. 


238  TRADES-UNIONISM.— I. 

question  the  fact  of  a  real  connection  existing  between  good 
wages  and  efficient  work,  and  still  less  would  I  dispute  the 
probability  (to  refer  here  to  a  later  position  of  Mr.  Brassey's) 
that  shortened  hours  of  work  may  up  to  a  certain  point  find 
their  compensation  in  the  increased  energy  of  the  workman. 
As  corroborative  of  these  assumptions,  I  regard  the  statement 
of  Mr.  Brassey's  experience  furnished  in  this  work  as  extreme- 
ly valuable.  But  the  I'eader  will  observe  that  there  is  some- 
thing more  in  the  passage  just  quoted  than  a  mere  statement 
of  specific  fact.  The  words  "it  was  found  to  be  an  almost  in- 
variable rule  that  the  cost  of  labor  was  the  same — that  for  the 
same  sum  of  money  the  same  amount  of  work  was  everywhere 
performed,"  coming  under  the  heading  "  Uniform  Cost  of  La- 
bor," seem  to  point  to  the  existence  of  an  economic  law  accord- 
ing to  which  the  efficiency  of  labor,  all  the  world  over,  varies 
with  its  price.  An  economic  law,  indeed,  there  is  which  con- 
nects efficiency  of  work  with  payment,  but,  as  I  have  else- 
where shown,  this  operates  only  within  the  limits  of  competi- 
tion.'^ Within  such  limits  the  tendency  very  obviously  will 
be  to  adjust  wages  in  each  occupation  to  efficiency  in  that  oc- 
cupation, and  thus  to  bring  out  as  the  result  a  uniform  cost  of 
labor,  or,  as  I  prefer  to  call  it,  price  of  work.  But  Mr.  Bras- 
sey  goes  far  beyond  lliis,  and  lays  down  the  rule  of  uniform 
cost  of  labor  as  "  almost  invariable  in  every  country  of  the  civ- 
ilized world  and  in  every  quarter  of  the  globe."  This,  indeed, 
would  have  been  a  "striking  law  of  industry,"  had  our  author 
made  the  position  good ;  but  it  is  singularly  disappointing  to 
discover,  ere  we  read  many  pages  on,  that  the  so-called  law 
can  only  be  regarded  as  a  rhetorical  expression.  At  page  84 
we  find  that  it  must  be  understood  as  referring  to  "  railway 
work  executed  by  unskilled  labor,"  while,  even  as  thus  lim- 
ited, it  is  far  from  being  universally  true,  foiling,  as  Mr.  Bras- 

*  See  ante,  p.  77,  note. 


COST  OF  LABOIL  239 

sey  informs  us  it  does,  in  the  comparison  of  English  hibor  with 
the  hibor  of  India  and  of  Italy  (pp.  87,  90),  and,  -as  statistics 
given  elsewhere  in  the  volume  show  (pp.  88  and  49),  in  other 
instances  also.  That  the  rule  does  not  hold  of  the  skilled  la- 
bor of  different  countries  is  what  is  implied  in  nearly  every 
other  page  of  Mr.  Brassey's  book ;  the  constant  moral  there 
enforced  being  the  heavy  detriment  which  Great  Britain  suf- 
fers from  her  dear  labor — a  detriment  so  heavy,  an  economical 
drawback  so  serious,  that  only  her  great  resources  in  other  re- 
spects enable  her  to  bear  up  under  it  against  the  strain  of  con- 
tinental competition. 

What,  then,  is  the  net  outcome  from  Mr.  Brassey's  facts  in 
their  bearing  upon  the  question  as  to  the  connection  between 
wages  and  the  cost  of  labor  or  pi'ice  of  work  ?  A  large  por- 
tion of  those  facts  relate  to  the  wages  of  laborers  in  Great 
Britain  in  free  competition  with  each  other;  and  so  far  his 
statements  form  a  striking  and  useful  illustration  of  a  familiar 
principle — the  tendency  of  competition,  within  any  given  de- 
partment of  industry,  to  adjust  payment  to  efficiency,  so  as  to 
render  the  price  of  a  given  piece  of  work  pretty  nearly  the 
same  whether  it  is  performed  by  labor  of  superior  or  of  only 
moderate  and  ordinary  skill.  But  where  his  examples  are  of 
broader  scope,  and  exhibit  the  relative  rates  of  wages  in  dif- 
ferent countries  and  in  labor  markets  not  in  free  competition 
with  each  other,  their  value  in  relation  to  the  question  in  hand 
is  of  a  difTerent  kind.  What  they  amount  to  would  seem  to 
be  this:  in  the  comparison  of  different  countries,  a  very  low 
rate  of  remuneration  for  labor  is  generally  found  to  be  accom- 
panied with  a  very  low  degree  of  industrial  efficiency,  while, 
as  the  condition  of  the  laborer  improves,  his  efficiency  up  to  a 
certain  point  is  found  to  increase  in  nearly  the  same  degree. 
I  say  "up  to  a  certain  point;"  for  it  does  not  appear  that 
the  correspondence  between  remuneration  and  efficiency  holds 
good  beyond  the  range  of  those  employments  which  call  for 


240  TRADES-UNIONISM.— I. 

mere  phj'sical  energy  and  endurance,  such  as  railway  work 
performed  by  unskilled  labor;  nor  is  it  found  to  be  universal- 
ly true  even  witbin  these  limits.  When  we  pass  from  the 
ranks  of  unskilled  to  those  of  skilled  labor,  and  when  in  the 
latter  we  confine  our  attention  to  those  cases  in  which  the  re- 
muneration has  risen  above  the  point  at  which  it  still  contrib- 
utes to  mere  physical  energy,  we  find  no  evidence  in  the  facts 
adduced  by  Mr.  Brassey  of  the  existence  of  a  uniform  cost  of 
labor  in  different  countries.  On  the  contrary,  the  main  tenor 
of  his  work  goes  to  establish  the  opposite  position ;  since,  as 
I  have  already  remarked,  the  constant  moral  deduced  from  his 
reasonings  is  the  heavy  disadvantage  which  England  under- 
goes from  her  dear  labor  in  comparison  with  the  cheap  labor 
of  the  Continent — a  disadvantage  so  great  as  only,  according 
to  Mr.  Brassey,  to  be  just  compensated  by  her  superior  re- 
sources in  machinery,  raw  material,  and  coal.  It  follows  most 
clearly  from  this  that,  in  Mr.  Brassey's  opinion,  that  portion 
of  English  work  which  is  performed  by  labor  is  more  highly 
paid  for  here  than  abroad.  And  in  truth  w'e  have  only  to 
consider  the  habits  of  the  great  mnjority  of  our  artisan  popu- 
lation to  perceive  how  very  slight  the  connection  can,  in  the 
nature  of  things,  be  between  efficient  labor  in  those  classes  and 
the  rate  of  their  remuneration.  An  increase  of  wages  which 
merely  results  in  an  enlarged  consumption  of  beer  and  spirits 
is  not  likely  to  add  much  either  to  the  physical  powers  or  to 
the  intelligence  and  skill  of  the  recipients;  and  notoriously 
this  is  the  way  in  which  an  increase  of  wages  is,  for  the  most 
part,  taken  out  in  this  countr3\  T  repeat  once  again,  I  have 
no  desire  to  dispute  the  existence  of  a  real  connection  between 
good  pay  and  efficient  work ;  only  let  us  note  well  the  nature 
of  the  connection.  It  exists  so  far,  and  only  so  fiir,  as  the 
larger  pay  is  applied  to  sustain  the  industrial  qualities,  phys- 
ical or  mental,  of  the  workman.  At  present  it  would  seem 
that  tliis  is  very  generally  the  case  while  wages  are  no  more 


HOJF  FAR   UNIFORM.  241 

than  sufficient  to  supply  the  primary  animal  wants.  But 
where  they  exceed  this  limit,  the  increased  pecuniary  means 
placed  at  the  laborer's  disposal  are  quite  as  often  employed  to 
impair  as  to  improve  his  industrial  qualities,  and  the  connec- 
tion between  remuneration  and  efficiency  is  at  an  end,  or  at 
most  is  but  a  matter  of  accident.  I  am  one  of  those,  however, 
who  live  in  hope  that  the  rule  may  not  always  be  thus  limit- 
ed. When  artisans  shall  learn  to  use  their  increasing  re- 
vsources  to  help  their  intellectual  and  moral  progress,  instead  of, 
as  now,  squandering  them  in  brutalizing  dissipation,  and  when 
improved  education  shall  go  hand  in  hand  with  a  larger  com- 
mand over  material  well-being,  we  may  hope  to  see  an  ap- 
proximation toward  that  uniform  cost  of  labor  of  which  Mr. 
Brassey  speaks,  but  of  which,  outside  the  lower  grades  of  la- 
bor, the  indications  at  present  are,  it  is  to  be  feared,  somewhat 
partial  and  rare. 

So  much  for  Mr.  Brassey's  facts.  I  fail  to  discover  in  them 
any  new  "law  of  industrial  life"  —  indeed  it  is  but  right  to 
say  that  Mr.  Brassey  disclaims  for  them  any  pretensions  to  this 
character — still  less  any  thing  in  the  least  at  variance  with  the 
well  understood  doctrines  of  Political  Economy ;  but  I  find 
evidence,  not  always,  as  it  seems  to  me,  very  accurately  inter- 
preted, of  which  a  good  part  is  illustrative  of  a  very  familiar 
economic  principle,  and  the  rest  supports  the  view  of  a  con- 
nection pretty  widely  existing  between  wages  and  industrial 
efficiency  in  the  lower  ranks  of  labor. 

16 


CHAPTER  IV. 

TRADES  ■  UNIONISM.— II. 

§  1.  The  methods  by  which  Trades-Unions  seek  to  operate 
on  the  rate  of  wages  are  numerous ;  but  they  all  find  a  place 
under  one  or  other  of  the  three  following  heads: 

1.  Directly — by  calling  on  employers  to  raise  the  rate  of 
wages,  or,  what  comes  to  the  same  thing,  to  reduce  the  num- 
ber of  working  hours,  the  rate  of  wages  not  being  proportional- 
ly* reduced — a  demand  which  involves  either  increased  invest- 
ment of  capital  in  the  form  of  wages ;  or — unless  so  far  as  the 
reduction  in  working  hours  may  be  compensated  by  increased 
efficiency  —  a  proportionally  diminished  production  from  the 
same  investment. 

2.  Indirectly — by  regulations  directed  toward  restricting  the 
supply  of  labor. 

3.  Indirectly  —  by  regulations  directed  toward  increasing 
the  demand  for  labor  by  increasing  the  need  for  it ;  or,  as  it  is 
otherwise  expressed,  by  increasing  the  quantity  of  work  to  be 
done. 

The  first  of  these  methods  is  that  which  has  been  considered 
in  the  last  chapter ;  and  the  reader  has  seen  how  far  we  found 
it  to  be  efficacious  and  legitimate.  The  two  remaining  methods 
have  now  to  be  considered. 

§  2.  And  first,  as  to  that  mode  of  action  which  seeks  to  at- 
tain its  end  by  acting  on  the  supply  of  labor.    In  order  to  form 


MODE  OF  ACTING   ON  HUFFLY.  243 

a  sound  judgment  on  this  portion  of  Trades-Union  policy,  it  is 
important  to  discriminate  between  two  perfectly  distinct  meth- 
ods by  which  the  supply  of  labor  may  be  controlled.  It  may, 
in  the  first  place,  be  controlled  at  its  source  by  diminishing  the 
number  of  people  born  to  the  calling  of  labor;  and  this  is  a 
result  which  Trades-Unions  might  in  many  ways  promote — for 
example,  by  cultivating  among  the  laboring  classes  a  sounder 
public  opinion  on  the  subject  of  population  than  at  present 
prevails,  by  impressing  on  parents  their  responsibility  toward 
their  offspring,  and  generally  by  encouraging  prudence  and 
foresight,  which,  once  established  as  habits,  would  affect  con- 
duct in  relation  to  marriage  and  its  consequences,  as  well  as 
with  regard  to  other  aspects  of  life;  and  this  influence  might 
be  brought  to  bear  either  upon  the  laboring  population  at  large, 
or  upon  those  sections  of  the  population  with  which  each 
Trades-Union  happened  to  be  immediately  in  contact.  This  is 
one  method  by  which  it  may  be  attempted  to  operate  on  the 
labor  market  through  the  supply  of  labor.  But  the  end  in 
view  may  also  be  sought  by  another  path,  namely,  by  opposing 
artificial  barriers  to  the  admission  of  workmen  to  particular 
trades — for  example,  by  regulations  excluding  from  employ- 
ment in  the  protected  trades  all  who  have  not  been  regularly 
apprenticed  to  them,  setting  limits  at  the  same  time  to  the  num- 
ber of  apprentices  which  each  master-tradesman  may  receive ; 
the  multiplication  of  the  laboring  people  as  a  whole  and  of  each 
portion  of  it  being  left  to  the  influences  which  at  present  deter- 
mine it.  Of  these  two  methods  of  proceeding  we  may  confi- 
dently pronounce  the  first  to  be  both  sound  and  legitimate — 
sound,  because  the  means  adopted  are  fitted  to  attain  the  end 
in  view,  and  legitimate,  because  the  course  pursued  would  be 
free  from  all  attempts  at  coercion,  and  would  be  addressed  ex- 
clusively to  the  reason  and  conscience  of  those  concerned.  "We 
have  no  occasion  here,  however,  to  enter  into  any  further  ex- 
amination of  this  mode  of  restricting  the  supply  of  labor,  since 


244  TRADES-UNIONISM.— II. 

it  is  not  the  method  which  Trades-Unions  have  adopted.  'Their 
action  in  this  direction  has  been  confined  exclusively  to  that 
other  mode  of  proceeding  which  consists  in  hedging  round  cer- 
tain favored  trades  with  artificial  obstacles ;  and  this  according- 
ly is  the  mode  of  action  we  are  now  called  upon  to  consider. 

And  here  it  may  at  once  be  conceded  that  the  policy  in 
question  is  capable  of  being  made  effectual  for  accomplishing 
its  immediate  purpose — that  of  raising  the  rate  of'wages  in  the 
regulated  occupations  above  the  level  which  in  an  open  labor 
market  it  would  attain  ;  but  conceding  this,  the  question  still 
remains  whether  this  mode  of  action  is  consistent  with  the  best 
interests  either  of  the  laboring  people  as  a  whole,  or  even  of 
that  section  of  them  in  whose  favor  the  restrictive  regulations 
are  imposed.  To  enable  us  to  form  a  judgment  upon  this 
point,  it  is  important  to  bear  in  mind  the  real  nature  of  the 
monopoly  created  by  the  restrictive  rule.  That  monopoly  is 
not,  as  might  at  first  be  imagined,  one  in  favor  of  certain  natu- 
ral groups  of  population — the  collection  of  families,  namely, 
who  supply  candidates  to  the  highly-paid  trades — as  opposed 
to  the  laboring  population  at  large.  It  is  a  monopoly  of  a 
much  narrower  and  more  artificial  sort  than  this.  The  line 
drawn  is,  not  between  such  natural  groups  and  the  rest  of  the 
laboring  people,  but  between  certain  selected  members  of  such 
groups  and  all  who  are  not  included  in  the  selection.  Now 
this  is  an  important  distinction ;  because  if  the  purpose  were 
to  reserve  certain  occupations  to  certain  groups  of  families,  say 
to  those  who  at  present  fill  the  occupations  in  question  and 
their  descendants — though  such  a  course  would  amount  to  the 
creation  of  industrial  castes,  and  would  be  open  to  all  the  ob- 
jections that  apply  to  a  caste  system — still  it  would  have  one 
important  merit:  the  end  in  view — the  permanent  elevation 
of  wages  in  the  favored  occupations  above  the  level  prevailing 
in  the  country — would  need  for  its  attainment  something  more 
than  the  mere  exclusion  of  competitors  from  other  employ- 


MODE  OF  ACTING  ON  SUPPLY.  245 

ments:  it  would  require,  besides  this,  a  control  of  population 
within  the  protected  groups,  and  consequently  could  only  be 
accomplished  by  the  cultivation  of  feelings  and  habits  socially 
so  valuable  that  they  might  almost  be  thought  to  compensate 
for  the  serious  evils  inherent  in  every  such  plan.  Such,  how- 
ever, is  not  the  object  or  character  of  the  policy  we  are  now 
considering.  The  thing  aimed  at  is  not  the  permanent  eleva- 
tion of  any  natural  groups  of  population,  but  simply  the  main- 
tenance of  certain  individuals  who  happen  to  be  exercising 
certain  callings  in  the  enjoyment  of  a  state  of  well-being  not 
permitted  to  their  fellows.  Those,  therefore,  who  charge  upon 
Trades-Unions  the  purpose  of  creating  industrial  castes  do  not 
seem  to  have  hit  the  precise  weakness  leavening  the  conduct 
they  condemn.  The  scheme  has,  in  truth,  nothing  in  it  so 
large  or  liberal  as  the  social  idea  on  which  a  caste  S3^stem  rests. 
It  is  conceived  in  a  far  narrower  spirit,  and  is  wholly  incapa- 
ble of  promoting  any  end  that  can  properly  be  called  social. 
Far  from  comprehending  in  its  aims  the  general  interests  of 
labor,  it  is  not  even  large  enough  to  embrace  those  of  a  single 
laboring  group,  or  even  of  the  family  in  its  narrowest  sense; 
for,  as  Mr.  Thornton  tells  us,*  "  a  journeyman  is  not  permitted 
to  teach  his  own  son  his  own  trade,  nor,  if  the  lad  managed  to 
learn  the  trade  by  stealth,  would  he  be  permitted  to  practice  it. 
A  master,  desiring  out  of  charity  to  take  as  apprentice  one  of  the 
eight  destitute  orphans  of  a  widowed  mother,  has  been  told  by 
his  men  that  if  he  did  they  would  strike.  A  brick-layer's  as- 
sistant who  by  looking  on  has  learned  to  lay  bricks  as  well  as 
his  principal,  is  generally  doomed,  nevertheless,  to  continue  a 
laborer  for  life.  He  will  never  rise  to  the  rank  of  brick-layer, 
if  those  who  have  already  attained  that  dignity  can  help  it." 

The  rule   is   thus   a   pureh^   mechanical  one,  and  operates 
wholly  irrespective  of  any  of  the  conditions  on  which  indus- 

*  "On  Labor,"  p.  3^3. 


2i6  TRADES  -  UNIONISM.— U. 

trial  progress  or  human  well-being  depends.  No  attempt  is 
made  to  control  population  within  the  protected  trades,  any 
more  than  outside  them.  Nor  are  the  privileges  enjoyed  con- 
nected with  any  qualification  which  might  serve  as  an  edu- 
cating influence  for  the  people  at  large.  On  the  contrary,  the 
system  presents  to  them  the  unedifying  spectacle  of  a  portion 
of  their  number  enjoying  exceptional  advantages  which  they 
have  done  nothing  to  deserve,  and  which  they  obtain  at  the 
expense  of  others  whose  natural  or  moral  claim  is  quite  as 
good  as  theirs.  It  thus  at  once  creates  privileged  classes,  and 
does  so  in  a  manner  which  precludes  even  such  partial  advan- 
tages as -might  accrue  from  a  regime  of  privilege. 

Mr.  Thornton,  indeed,  has  offered  a  plea  for  these  restrictions 
which,  if  it  could  be  made  good,  might  go  some  way  toward 
excusing  them.  He  writes:  "The  only  apology  that  can  be 
offered  to  the  many  is,  that  without  the  sacrifices  exacted  from 
them  the  privileges  enjoyed  by  the  few  could  never  be  pre- 
served; and  that,  moreover,  the  sacrifices  may  be  only  tempo- 
I'ary,  for  that  the  best  chance  the  whole  laboring  population 
have  of  advancing  is  by  each  of  its  separate  sections  advancing 
separately,  and  that  therefore  each  Trades-Union  is  best  con- 
sulting the  general  good  by  attending  in  the  first  instance  ex- 
clusively to  its  own."  It  must  of  course  be  admitted  that  the 
privileges  enjoyed  by  the  few  under  this  scheme  can  only  be 
preserved  by  imposing  sacrifices  on  the  many;  but  Mr.  Thorn- 
ton can  scarcely  have  intended  this  as  its  justification,  since 
precisely  the  same  can  be  said  for  every  monopoly  that  ever 
existed.  The  second  portion  of  his  plea,  that  the  plan  in  ques- 
tion, though  confined  at  present  to  a  favored  few,  may  be 
made  instrumental  for  gradually  elevating  the  whole  laboring- 
population,  would  be  more  to  the  purpose  if  the  fact  were  as 
he  assumes.  But  this  is  precisely  what  I  must  deny  to  be 
the  case.  The  essential  nature  of  the  plan  absolutely  precludes 
the  possibility  of  its  being  applied  to  any  such  enlarged  pur- 


HOW  FAR  JUSTIFIABLE?  247 

pose.  For  on  what  does  its  efficacy  depend?  Let  the  reader 
observe  that,  as  I  have  already  pointed  out,  it  makes  no  pro- 
vision for  the  control  of  population  either  within  or  without 
the  protected  trades ;  and  further,  that,  while  it  leaves  popula- 
tion to  proceed  as  the  unchecked  instincts  of  its  members  may 
determine,  it  fails  equally  to  take  any  steps  for  making  labor 
more  productive:  indeed,  as  I  shall  presently  have  occasion  to 
point  out,  there  are  other  portions  of  the  Trades-Union  regu- 
lations which  tend  directly  to  limit  and  even  positively  to  re- 
duce the  productive  powers  of  industry.  On  what,  then,  does 
the  efficacy  of  the  arrangement  depend?  Simply  and  exclu- 
sively on  the  circumstance  of  the  monopoly  it  creates — on  the 
fact  that  those  within  the  protected  trades  are  few  as  compared 
with  those  who  are  outside  them.  Increase  the  numbers  within 
the  protected  trades  in  relation  to  the  outsiders,  or,  on  the  oth- 
er hand,  diminish  the  number  of  outsiders  in  relation  to  those 
who  are  protected,  and  the  virtue  of  the  scheme  evaporates, 
and  wages  inside  and  outside  return  to  their  natural  level. 
The  entire  efficacy  of  the  system  thus  depending  upon  the  foct 
that  it  is  partially  applied,  the  extension  of  its  privileges  to 
the  whole  population  would  be  equivalent  to  their  complete 
abrogation.  Such  a  system,  from  its  very  nature,  is  incapable 
of  the  development  claimed  for  it.  At  the  utmost  it  can  only 
do  what  it  actually  accomplishes  —  secure,  that  is  to  say,  ex- 
ceptional advantages  for  a  select  few,  the  condition  of  their  en- 
joyment being  that  the  same  advantages  shall  not  be  shared 
by  the  man}-.  I  grant  it  is  not  for  the  richer  or  more  edu- 
cated classes  to  throw  stones  here  at  Trades-Unionists;  and  I 
have  certainly  no  desire  to  do  so.  There  is  no  class  that  has 
not  shown  itself,  when  opportunity  offisred,  quite  capable  of 
sacrificing  the  most  important  interests  of  the  community  to 
the  aggrandizement,  real  or  imaginary,  of  its  own  members ; 
and  the  working-classes  are  in  this  respect  neither  better  nor 
worse  than  others.     But  if  every  anti-social  regulation  is  to  be 


248  TRADES-UNIONISM.— 11. 

sanctioned  and  upheld  among  working-men  which  has  ever 
obtained  footing  among  those  who  are  called  their  betters,  the 
prospect  of  social  advancement  seems  but  small.  Into  these 
class  questions,  however,  I  have  no  wish  to  enter  here.  My 
purpose  has  been  simply  to  ascertain  the  real  character  and 
bearing  of  this  particular  portion  of  Trades-Union  rules ;  and 
this  is  the  result  to  which  I  am  led :  I  find  it  to  be  in  its  es- 
sential character  a  monopoly  of  the  narrowest  kind,  capable 
indeed  of  accomplishing  some  small  results  in  favor  of  a  priv- 
ileged few,  but  wholly  destitute  of  efficacy  as  an  expedient  for 
helping  social  improvement;  a  monopoly,  moreover,  founded 
on  no  principle  either  of  moral  desert  or  of  industrial  efficiency, 
but  simplj'-  on  chance  or  arbitrary  selection,  and  which  there- 
fore can  not  but  exert  a  demoralizing  influence  on  all  who 
come  within  its  scope ;  in  all  its  aspects  presenting  an  ungra- 
cious contrast  to  all  that  is  best  and  most  generous  in  the  spirit 
of  modern  democracy. 

"  If,"  says  Mr.  Mill,*  "  no  improvement  were  to  be  hoped  for  in  the 
general  circumstances  of  the  working-classes,  the  success  of  a  portion  of 
them,  however  small,  in  keeping  their  wages  by  combination  above  the 
market  rate,  would  be  wholly  a  matter  of  satisfaction.  But  when  the  el- 
evation of  the  character  and  condition  of  the  entire  body  has  at  last  be- 
come a  thing  not  beyond  the  reach  of  rational  effort,  it  is  time  that  the 
better  paid  classes  of  skilled  artisans  should  seek  their  own  advantage  in 
common  with,  and  not  by  the  exclusion  of,  their  fellow-laborers.  While 
they  continue  to  fix  their  hopes  on  hedging  themselves  in  against  com- 
petition, and  protecting  their  own  wages  by  shutting  out  others  from  ac- 
cess to  their  employment,  nothing  better  can  be  expected  from  them  than 
that  total  absence  of  any  large  and  generous  aims,  that  almost  ojjen  dis- 
regard of  all  other  objects  than  high  wages  and  little  work  for  their  own 
small  body,  which  %vere  so  deplorably  evident  in  the  proceedings  and 
manifestoes  of  the  Amalgamated  Society  of  Engineers  during  their  quar- 
rel with  their  employers.  Success,  even  if  attainable,  in  raising  up  a 
protected  class  of  working-peojile,  would  now  be  a  hinderance,  instead 
of  a  help,  to  the  emancipation  of  the  working-classes  at  large." 

*  "Principles  of  Political  Economy,"  vol.  ii.,  pp.  554,  555. 


"MAKING  wore:'  249 

§  3.  There  is  yet  another  line  of  conduct  by  which  Trades- 
Unions  may  and  do  seek  to  act  upon  the  rate  of  wages — a 
course  which  is  directed  neither  to  augmenting  the  sum  total 
of  wealth  applied  to  the  payment  of  wages,  nor  yet  to  restrict- 
ing the  supply  of  labor,  but  to  enhancing  the  difficulties  of 
production,  and  thereby  increasing  the  quantity  of  work  need- 
ed to  be  done — in  a  word,  it  seeks  to  raise  wages  by  "  making 
work." 

Now  this  portion  of  Trades-Union  policy  rests  upon  a  view 
of  the  wages  problem  at  once  so  plausible  and  so  fallacious, 
and  withal  so  pregnant  with  practical  mischief,  that  I  think  it 
will  be  worth  our  while,  before  entering  into  the  particular 
rules  by  which  it  is  sought  to  carry  it  into  effect,  to  consider 
briefly  the  theoretic  principle  underlying  it ;  and  I  am  the 
more  disposed  to  do  so,  because  I  find  that  those  who  favor 
this  principle  are  by  no  means  confined  to  the  supporters  of 
Trades-Unions.  In  point  of  fact,  in  the  discussions  which  have 
lately  taken  place  on  the  wages  problem,  the  soundness  of  the 
view  in  question  has  been  very  generally  taken  for  granted  on 
both  sides.  In  Mr.  Thornton's  work  it  is  not  merely  taken  for 
granted :  the  doctrine  is  deliberately  put  forward  and  formally 
defended  as  an  indubitable  principle  of  economic  science.  Mr. 
Thornton  indeed,  it  is  proper  to  say,  while  upholding  the  theo- 
ry, strongly  denounces  its  practical  application  in  the  rules  of 
Trades-Unions;  but  this  logical  inconsistency  will  not  deprive 
his  advocacy  of  the  weight  which  naturally  attaches  to  it ;  and 
I  shall  therefore  make  no  apology  for  examining  the  doctrine 
as  I  find  it  set  forth  and  defended  in  his  work.  The  character 
and  scope  of  the  principle  to  which  I  refer  will  appear  from 
the  following  passages. 

At  page  87  Mr.  Thornton  writes: 

"The  quantity  of  labor  which  an  emiiloyer  needs  depends  wpon  the 
work  he  wants  to  have  done.  If  there  are  certain  jobs  which  it  is  essen- 
tial to  him  to  get  finished  within  a  certain  time,  he  will,  if  labor  be  dear, 


250  TEADES-UNIONISM.—II. 

consent  to  pay  pretty  higli  for  the  quantity  needed  to  complete  the  jobs 
within  the  time.  But  he  will  not,  merely  because  labor  happens  to  be 
cheap  instead  of  dear,  hire  more  than  that  quantity.  If,  on  Saturday 
morning,  he  wants  his  hay  cut  or  carried  before  night,  and  if  fewer  than 
ten  men  would  not  suffice,  he  will,  perhaps,  consent  to  give  ten  men  5s. 
apiece,  but  he  would  not  engage  twenty  men  for  the  same  service,  even 
if  he  could  get  them  for  Is.  a  head." 

Again,  at  page  103  : 

"  This  happens  [/.  e.,  the  demand  for  labor  is  urgent]  in  new  colonies,  in 
which  the  extent  of  land  to  be  tilled,  and  the  number  of  sheep  or  oxen 
to  be  tended,  and  of  meals  to  be  cooked,  and  floors  to  be  scrubbed,  is 
generally  out  of  all  proportion  to  the  number  of  available  hinds  and 
herds,  cooks  and  house-maids." 

And  lastly,  I  find  this  more  decisive  passage  at  page  339 : 

"  I  am  myself  unable  to  understand  how  mere  labor-saving  machinery 
can  possibly,  if  no  counteracting  cause  intervene,  fail  to  diminish  the  de- 
mand for  labor.  If,  indeed,  the  machineiy  increased  the  productiveness 
of  labor  in  a  greater  ratio  than  that  in  which  it  saved  labor,  its  influence 
on  employment  would  be  different.  If,  by  using  improved  implements, 
one  man  were  enabled  not  merely  to  do  the  work  of  two,  but  to  turn  out 
more  produce  than  the  two  together  had  formerly  done,  the  demand  for 
labor  might  remain  unabated,  or  might  increase.  If  with  only  half  the 
previous  expenditure  of  labor  two  ears  of  wheat  were  made  to  grow 
where  but  one  grew  before,  or  twice  as  much  iron-stone  were  brought 
to  the  pit's  mouth,  or  twice  as  many  herrings  were  caught,  those  men 
for  whom  there  was  no  longer  place  in  the  corn-field,  or  in  the  mine,  or 
on  the  fishing-ground,  might  yet  find  full  employment  in  making  the 
additional  wheat  into  bread,  or  in  smelting  the  additional  ore,  or  in 
curing  and  packing  the  additional  fish.  But  if  there  be  no  more  corn, 
and  no  more  ore,  and  no  more  fish  than  usual,  if  the  new  macliinery  has 
created  no  new  work,  and  has  only  enabled  the  old  work  to  be  done 
with  fewer  hands,  thereby  causing  some  old  hands  to  be  discharged,  how 
can  it  be  asserted  that  the  field  of  employment  is  enlarged  ?  how  denied 
that  it  is  diminished  ?" 

The  theory  expressed  or  implied  in  these  passages  is  that 
the  demand  for  labor,  in  so  far  as  it  affects  the  ivages  of  labor, 


'' MAKING  WORK."  251 

depends  upon  and  is  measured  by  the  quantity  of  industrial 
work  to  be  done,  which  quantity  of  industrial  work,  Mr.  Tliorn- 
ton  tells  us,  is  "at  any  given  time  a  fixed  quantity"  (pp.  334, 
335);  a  position  from  which  the  direct  inference  is — an  infer- 
ence partially  drawn  by  Mr.  Thornton  himself — that  the  in- 
terests of  labor  are  promoted  by  whatever  tends  to  increase 
the  quantity  of  work  which  society  has  to  do;  while  those  in- 
terests are  proportionally  prejudiced  by  whatever  tends  to  cur- 
tail the  quantity  of  needed  work.  Now  there  can  be  no  ques- 
tion as  to  the  very  great  plausibility  of  this  doctrine.  I  sup- 
pose there  are  very  few  working-men,  and  perhaps  not  a  great 
many  outside  their  ranks,  who  would  not  accept  it  as  thus 
stated.  We  alb  see  at  once  that  labor  will  only  be  employed 
where  there  is  work  to  be  done  ;  and  again,  that  the  more  work 
there  is  to  do  of  a  particular  kind,  the  more  laborers  thei'e  will 
be  employed  in  doing  that  particular  work ;  while  it  is  also 
true  that,  where  the  work  required  is  of  a  very  urgent  kind, 
employers  will  be  disposed  to  raise  their  offer  of  wages  in  or- 
der to  attract  labor.  All  this  is  indisputably  sound  and  true; 
and  the  conclusion  drawn  from  these  unquestionable  premises, 
that  the  interest  of  the  laborins;  classes  lies  in  the  work  needed 
by  society  being  as  great  and  as  urgent  as  possible,  certainly 
seems  plausible  enough.  Nevertheless  I  must  make  bold  to 
say  that,  within  the  range  of  economic  reasoning,  no  more  pro- 
found fallacy  finds  a  place  than  is  contained  in  this  inference; 
nor,  I'must  add,  is  there  one  more  pregnant  with  practical  con- 
sequences of  a  pernicious  kind.  Observe  some  of  the  conse- 
quences that  flow  from  it.  If  the  interests  of  labor  require 
that  the  quantity  of  work  to  be  done  by  labor  be  as  large  as 
possible,  then  it  follows  that  all  labor-saving  machines  are  op- 
posed to  the  laborer's  interests.  ]\fr.  Thornton,  as  we  have 
seen,  admits  that  this  is  so  whenever  the  new  machinery  does 
not,  as  in  the  instances  which  he  adduces,  create  as  much  new 
work  as  it  sets  aside  of  old  (p.  339).     What  proportion  of  all 


252  TRADES-UNIONISM.— 11. 

the  machinery  employed  in  helping  industry  in  this  country 
would,  under  this  qualification,  escape  condemnation,  as  not 
injurious  to  the  laborer's  interests,  I  will  not  attempt  to  con- 
jecture— I  should  expect  an  exceedingly  minute  fraction  of 
it;  but  at  least  it  is  evident  that  so  much  of  it  as  is  used  in 
the  later  stages  of  manufacture — certainly  all  connected  with 
the  finishing  stages  of  the  process — would  fall  under  the  de- 
scription of  machinery  which  created  no  new  work  to  take  the 
place  of  what  it  superseded  ;  and  would  therefore,  according  to 
Mr,  Thornton's  view,  be  properly  characterized  as  hostile  to 
the  interests  of  labor.  Again,  by  parity  of  reasoning,  separa- 
tion of  employments  is  opposed  to  the  same  interests;  for  what 
else  is  the  purpose  of  thus  organizing  industry,  but  in  order  to 
make  it  more  effective;  in  other  words,  to  abridge  the  amount 
of  society's  work  ?  If  every  man  who  took  part  in  pin-mak- 
ing were  compelled  to  make  the  entire  pin — to  draw  out  the 
wire,  to  straighten  it,  to  cut  it,  to  point  it,  to  grind  it  at  the 
top  for  receiving  the  head,  to  make  and  put  on  the  head,  etc. 
— the  number  of  men  required  for  the  work  of  pin -making 
would  be  indefinitely  greater  than  at  present,  and,  no  other 
work  being  superseded,  the  field  for  the  employment  of  labor 
would,  according  to  the  view  we  are  considering,  be  greatly 
e:ji tended.  Division  of  labor,  therefore,  which  narrows  this 
field,  is,  according  to  this  principle,  plainly  opposed  to  the  in- 
terests of  labor.  Nor  is  free  trade  less  clearly  condemned  by 
the  same  doctrine.  The  international  exchange  which  it  pro- 
motes is  merely  an  example  of  division  of  labor  on  a  great 
scale,  and  works  toward  precisely  the  same  end  as  the  more 
simple  forms — the  economy  of  labor  in  the  production  of  com- 
modities. But  these  examples  only  represent  one  side  of  the 
consequences  which  may  be  drawn  and  have  been  drawn  from 
this  notable  principle ;  for  if  the  laborer  is  damnified  by  what- 
ever tends  to  abridge  the  "  work  to  be  done,"  we  may  also 
argue  conversely  that  he  must  be  proportionall}^  benefited  by 


"MAKING  WORE."  253 

whatever  increases  it,  more  particularly  if  the  additional  work 
be  of  an  urgent  kind.  A  hurricane,  e.  g.,  which  strips  our 
roofs,  and  smashes  our  windows,  and  sweeps  away  our  hag- 
gards, becomes  in  the  light  of  this  theory  a  beneficent  influ- 
ence, pregnant  with  riches  for  the  sons  of  toil — * 

"  The  clouds  we  so  much  dread 

Are  big  with  mercy,  and  shall  break 
In  blessings  on  their  head." 

It  increases  the  quantity  of  work  to  be  done,  and  so,  as  the 
saying  goes,  "is  all  for  the  good  of  trade."  So  also  must  it 
be  for  the  good  of  trade,  according  to  the  same  doctrine,  that 
thieves  and  burglars  should  abound,  since  does  it  not  create 
plenty  of  policeman's  work?  Does  it  not  compel  us  to  place 
bolts  and  bars  upon  our  doors  and  windows,  thus  creating 
work  for  smiths  and  carpenters?  Further,  consider  all  the 
work  that  is  rendered  imperative  by  the  aggressive  instincts 
and  ambitious  designs  of  nations  against  each  other:  standing 
armies,  arsenals  and  fortifications,  arms  and  ammunition  — 
what  a  vast  amount  of  work  to  be  done  do  not  these  things 
represent!  And  how  would  not  merely  the  soldier's,  but  the 
productive  laborer's  occupation  be  gone,  or  at  all  events  be 
seriously  abridged,  if  ever  the  disastrous  consummation  should 
arrive  of  general  disarmament  and  universal  peace!  We  are 
accustomed  to  laugh  at  the  celebrated  petition  of  the  chandlers 

*  That  I  have  not  exaggerated  the  argument  will  be  seen  from  the  following  ex- 
tract from  an  editorial  article  in  the  New  York  Tribune.  (October  21,  1871)  apro- 
pos of  the  burning  of  Cliicago,  which  I  find  in  Mr.  Wells's  Essay  in  the  Cobden 
Club  volume:  "The  money  to  replace  what  has  been  burned  will  not  be  sent 
abroad  to  enricli  foreign  manufactures;  but.  tliaiiks  to  the  wise  policy  of  protec- 
tion which  has  built  up  American  industries,  it  will  stimulate  our  own  manufac- 
tures, set  our  mills  running  faster,  and  give  emjtloyment  to  thousands  of  idle  work- 
men. Thus  in  a  short  time  our  abundant  natural  resources  will  restore  what  has 
been  lost,  and  in  converting  the  raw  material  our  manufacturing  interests  will  take 
on  a  new  activity. " 


2G4  Til  J  DES  -  UNIONISM.— II. 

and  lamp-manufacturers,  recorded  by  M.  Bastiat,  for  excluding 
the  light  of  the  sun.  But  the  simple  object  of  that  petition 
was  to  increase  the  quantity  of  social  work  to  be  performed; 
and,  for  my  part,  I  am  unable  to  see  how  those  who  accept 
the  theory  I  am  now  combating  could  consistently  refuse  their 
signatures. 

Where,  then,  is  the  fallacy  in  the  reasoning  which  leads 
to  these  conclusions?  If  labor  will  only  be  employed  where 
\york  is  to  be  done,  and  will  be  employed  more  largely  in  any 
given  work  in  proportion  as  there  is  more  of  that  work  to  do; 
and  if  again,  as  the  work  becomes  more  urgent,  the  laborer  is 
more  sought;  why  is  it  wrong  to  say  that  it  is  the  interest  of 
the  laborer  that  the  quantity  of  work  to  be  done  should  be  as 
large,  and  the  need  for  it  as  urgent,  as  possible?  The  answer 
is  twofold :  in  the  first  place,  what  laborers  are  interested  in  is 
not  work,  but  remuneration..  People,  said  Archbishop  Whate- 
ly,  go  about  saying  "  they  want  work,"  when  what  they  really 
want  is  wages.  This  sounds  like  a  jest;  but  the  confusion  of 
thought  it  exposes -is  precisely  the  confusion  embodied  in  the 
argument  just  gtated.  Work  and  wages  are  there  assumed 
to  be,  if  not  strictly  convertible  terms,  at  least  facts  so  closely 
bound  together  that  an  increase  of  the  one  may  be  taken  as 
equivalent  to  an  increase  of  the  other.  Now,  before  going 
further,  it  may  be  well  to  expose  the  utter  groundlessness  of 
this  notion  as  a  matter  of  foct;  and  a  Blue  Book  recently  is- 
sued by  the  Government*  fortunately  supplies  me  with  what 
is  necessary  for  this  purpose. 

I  take  the  three  countries,  Germany,  England,  and  Califor- 
nia: I  find  that  in  the  first  the  number  of  hours  in  a  working 
day  varies  l:^etween  fourteen,  for  some  occupations,  and,  for  the 
great  majority,  twelve.  In  England  it  is  now  mostly  ten,  but, 
ill  an  increasing  number  of  trades,  nine  only.     In  California 

*  "  Condition  of  the  Working-classes  in  Foreign  Countries,"  1871, 


WOBE  AND  WAGES.  255 

ten  is  the  maximum,  while  in  many  trades  the  number  is  as 
low  as  eight.  Now  it  would  no  doubt  be  unwarrantable  to 
assume  that  the  work  to  be  done  in  different  countries  varied 
for  a  given  quota  of  working-people  with  the  number  of  hours 
in  a  working  da}',  inasmuch  as  one  man  may  put  as  much 
work  into  nine  hours  as  another  into  fourteen  ;  but  the  crite- 
rion would  be  correct  unless  so  far  as  it  was  affected  by  the 
different  efficiency  of  labor  in  different  countries.  Taking  ac- 
count of  this,  and  assuming,  what  I  imagine  is  quite  in  excess 
of  the  truth,  that  English  labor  is  more  efficient  than  German 
in  the  proportion  of  fourteen  or  twelve  to  ten  or  nine,  it  would 
follow  that  the  work  to  be  done  in  Germany  would  bear  about 
the  same  proportion  to  her  laboring  population  as  the  work 
to  be  done  in  England  bears  to  the  laboring  population  of 
this  country.  With  regard  to  California,  I  do  not  suppose  it 
would  be  contended  that  labor  there  is  more  efficient  than  in 
England,  and  we  may,  therefore,  assume  that  the  work  to  be 
done  in  the  two  countries,  in  its  relation  to  the  laboring  popu- 
lation of  each,  is  fairly  represented  by  the  respective  lengths 
of  their  working-day.  The  result  of  our  comparison  then  is, 
that  the  work  to  be  done  in  the  three  countries,  Germany,  En- 
gland, and  California,  bears  about  the  same  proportion  in  each 
to  the  number  of  the  laboring  population.  This  being  so',  if 
the  connection  between  work  and  wages  be  such  as  the  the- 
ory we  are  considering  assumes,  wages  in  the  three  countries 
should  be  about  the  same.  In  point  of  fact,  I  need  scarcely 
say  wages  in  California,  even  after  making  all  due  allowance 
for  the  difference  in  the  range  of  local  prices  here  and  there, 
are  at  least  double  what  they  are  in  England,  and  at  least  four 
times  what  they  are  in  Germany.  So  little  connection  is  there 
in  reality  between  the  quantity  of  work  which  a  given  socie- 
ty has  to  perform  and  the  rates  of  wages  prevailing  in  that 
society. 

This,  however,  is  neither  the  only,  nor  the  least  fallacy  in- 


256  TRADES-UNIONISM.— 11. 

volved  in  the  doctriue  we  are  considering.  It  is  a  necessary 
assumption  in  that  doctrine — indeed  the  position  is  formally 
taken  by  Mr.  Thornton — that  "the  quantity  of  work  to  be 
done"  is  at  any  given  time  a  "fixed"  quantity.  Now  this 
must  at  once  be  met  by  a  direct  denial.  The  work  which  so- 
ciety has  to  do  is  not  a  fixed  quantity.  On  the  contrary,  it 
is  absolutely  indefinite  and  practically  unlimited:  indefinite, 
as  varying  with  human  wants  and  desires ;  and  practically  un- 
limited, because  always  far  in  excess  of  what  human  hands 
can  accomplish.  I  am  speaking  now,  not  of  society  in  its  early 
stages,  when  human  desires,  and  therefore  the  work  of  socie- 
ty, may,  with  some  truth,  be  said  to  be  confined  within  certain 
narrow  and  tolerably  fixed  bounds,  but  of  society  as  we  know 
it  in  Western  Europe  and  the  United  States,  after  civilization 
has  kindled  those  insatiable  aspirations  and  created  those  in- 
numerable needs  which  distinguish  the  civilized  from  the  un- 
civilized man.  In  society,  when  it  has  reached  this  stage, 
there  is  no  practical  limit  to  the  desires  of  human  beings,  nor 
therefore  to  the  quantity  of  work  which  they  would  wish  to 
have  done ;  and  even  though  the  course  of  civilization  should 
be,  as  I  trust  it  may  be,  toward  the  adoption  of  simpler  tastes 
and  habits  in  all  that  concerns  mere  physical  well-being,  the 
introduction  of  more  simple  modes  of  life,  while  limiting  the 
range  of  wants  in  one  direction,  would  not  fail,  we  may  rea- 
sonably assume,  to  open  the  door  to  new  paths  of  expenditure 
in  others.  Benevolence  and  public  spirit,  the  interests  of  sci- 
ence and  literature,  would  become  powerful  and  exigent,  as 
the  tastes  for  mere  physical  luxury  and  personal  indulgence 
or  aggrandizement  declined,  and  would  rapidly  create  wants 
to  take  the  place  of  those  which  would  now  be  no  longer  felt. 
The  social  work  to  be  done,  therefore,  though  under  such  a 
regime  as  we  are  contemplating  differing  much  from  that  which 
now  occupies  industry,  would  still  be  as  indefinite  and  as  prac- 
tically unlimited  as  ever.     There  is  thus  no  practical  limit  to 


SOCIAL  WORK,  INDEFINITE.  257 

the  quantity  of  social  work  to  be  performed;  and  we  may 
now  see  the  true  nature  of  the  relation  in  which  all  the  vari- 
ous contrivances — machinery,  separation  of  employments,  free 
trade — which  tend  to  economize  and  abridge  human  labor, 
stand  to  the  interests  of  those  whose  labor  they  supersede. 
Their  effect  is  not  to  curtail  the  ag^sjreofate  amount  of  social 
work — that,  as  I  have  said,  is  always  far  in  excess  of  what  hu- 
man capacity  can  accomplish — but  to  alter  the  nature  of  that 
work.  So  much  labor  and  capital  are  relieved  from  the  tasks 
formerly  required  of  them,  and  set  free  for  the  performance  of 
new  work,  for  the  satisfaction  of  cravings  hitherto  unfelt.  I 
quite  admit  that  the  change  from  one  mode  of  production,  or 
from  one  system  of  industry  to  another,  even  though  that  oth- 
er be  a  better  oiie,  is  almost  always  attended  with  more  or  less 
temporary  inconvenience,  and  sometimes  even  with  consider- 
able suffering,  for  those  whose  occupations  have  been  dis- 
placed ;  and  this  is  a  good  reason  for  society  doing  all  in  its 
power  to  alleviate  and  repair  these  inevitable  but  transitory 
evils.  But  we  have  now  to  do,  not  with  the  incidental  con- 
sequences of  improvements,  but  with  their  essential  character 
and  permanent  significance  as  regards  the  interests  of  labor : 
and  I  say  that,  regarding  them  in  this  light,  their  tendency  is, 
not  to  leave  society  without  occupation,  but  to  alter  from  time 
to  time  the  occupations  with  which  society  busies  itself — to 
provide  for  the  easier  satisfaction  of  its  primary  and  more 
pressing  wants,  and  thereby  to  render  possible  the  further  sat- 
isfaction of  numerous  secondary  wants  of  a  less  urgent  kind. 
A  limit  indeed  there  is — a  very  real  limit — to  the  emplo3-ment 
of  labor  in  a  limited  area  of  country ;  but  that  limit  does  not 
lie  in  the  quantity  of  social  work,  but  in  the  productive  power 
of  the  agents  emplo^^ed  in  performing  it — in  other  words,  in 
the  increasing  cost  of  production.  The  work  is  there  to  do, 
but  the  efforts  needed  to  accomplish  the  work  are  greater  than 
the  pi'oduct  is  thought  to  be  worth.     Here  is  the  true  antl 

17 


•258  TRADES-UNIONISM.— II. 

only  limit  to  the  employment  of  labor;  and  its  removal  or  ex- 
tension is  to  be  sought,  not  in  multiplying  the  obstacles  that 
oppose  the  satisfaction  of  human  desires,  and  so  "  making 
work,"  but  in  precisely  the  opposite  direction — in  the  removal, 
as  far  as  may  be,  of  such  obstacles,  and  in  freel}^  availing  our- 
selves of  all  arts  and  contrivances  by  which  human  effort  may 
be  rendered  productive  of  larger  result.  Increase  the  produc- 
tive powers  of  industry,  extend  the  knowledge  of  the  industrial 
arts  which  support  and  comfort  mankind,  and  there  is  little 
danger  that  laborers  will  ever  fail  of  employment  for  want  of 
work  to  do. 

So  much,  then,  for  that  view  of  economic  doctrine  which 
identifies  human  well-being  with  the  maintenance  and  mul- 
tiplication of  the  obstacles  to  its  attainment ;  in  the  words 
of  Bastiat,  confounding  obstacle  with  cause,  and  effort  with 
]-esult. 

§  4.  Let  us  now  observe  its  practical  development  in  the 
I'ules  of  Trades-Unions.  The  following  examples  I  take  from 
Mr.  Thornton's  work : 

"  Some  Uuions  divide  the  countiy  round  them  into  districts,  and  will 
not  permit  the  products  of  tlie  trades  controlled  by  them  to  be  used,  ex- 
cept within  the  district  in  which  they  have  been  fabricated At 

Manchester  this  combination  is  particularly  effective,  preventing  any 
bricks  made  beyond  a  radius  of  four  miles  from  entering  the  city.  To 
enforce  the  exclusion,  paid  agents  are  employed ;  every  cart  of  bricks 
coming  toward  Manchester  is  watched,  and  if  the  contents  1)e  found  to 
have  come  from  without  the  prescribed  boundary  the  brick-layers  at 

once  refuse  to  work The  vagaiics  of  the  Lancashire  brick-mak- 

<Ts  are  fairly  paralleled  by  the  masons  of  the  same  county.  Stone,  when 
freshly  quarried,  is  softer,  and  can  he  more  easily  cut  than  later:  men 
habitually  employed  about  any  ]>ai'ticular  quarry  bettor  understand  Die 
working  of  its  particular  stone  than  men  fronn  a  distance  ;  tliere  is  great 
I'conomy,  too,  in  transporting  stone  dressed  instead  of  in  rough  blocks. 
The  Yorkshire  masons,  however,  will  not  allow  Yorkshire  stone  to  I:c 


SOCIAL  WORE,  INDEFINITE.  259 

brought  into  their  district  if  worked  on  more  than  one  side.  All  the 
rest  of  the  working,  the  edging  and  jointing,  they  insist  on  doing  them- 
selves, though  they  thereby  add  thirty-five  per  cent,  to  its  price 

A  Bradford  contractor,  requiring  for  a  stair-case  some  steps  of  hard 
delf-stone,  a  material  which  Bradford  masons  so  much  dislike  that  they 
often  refuse  employment  rather  than  undertake  it,  got  the  steps  worketl 
at  the  quarry.  But  when  they  arrived  ready  for  setting,  his  masons  in- 
sisted on  their  being  worked  over  again,  at  an  expense  of  from  5s.  to  10». 
per  step.  A  master-mason  at  Ashton  obtained  some  stone  ready  polished 
from  a  quarry  near  Macclesfield.  His  men,  however,  in  obedience  to  the 
rules  of  their  club,  refused  to  fix  it  until  the  polished  part  had  been  de- 
faced and  they  had  polished  it  again  by  hand,  though  not  so  well  as  at 

first 

"In  one  or  two  of  the  northern  counties,  the  associated  plasterers  and 
associated  plasterers'  laborers  have  come  to  an  understanding,  according 
to  which  the  latter  are  to  abstain  from  all  plasterers'  work  except  simple 
whitewashing;  and  the  plasterers  in  return  are  to  do  nothing,  except 
pure  plasterers'  work,  that  the  laborers  would  like  to  do  for  them,  inso- 
much that  if  a  plasterer  wants  laths  or  plaster  to  go  on  with,  he  must  not 
go  and  fetch  them  himself,  but  must  send  a  laborer  for  them.  In  conse- 
quence of  this  agreement,  a  Mr.  Booth,  of  Bolton,  having  sent  one  of  his 
plasterers  to  bed  and  point  a  dozen  windows,  had  to  place  a  laborer  with 
him  during  the  whole  of  the  four  days  he  was  engaged  on  the  job,  though 
any  body  could  have  brought  him  all  he  required  in  half  a  day 

•  Not  besting  one's  mates'  has  by  several  Unions  been  made  the  subject 
of  special  enactment.  '  You  are  strictly  cautioned,'  says  a  by-law  of  the 
Bradford  Brick-layers'  Laborers,  '  not  to  overstep  good  rules  by  doing 
double  work,  and  causing  others  to  do  the  same  in  order  to  gain  a  smile 
from  the  master.  Such  fool-hardy  and  deceitful  actions  leave  a  great  por- 
tion of  good  members  out  of  employment.  Certain  individuals  have  been 
guilty,  who  will  be  expelled  if  they  do  not  refrain.'  The  Manchester 
Brick-layers'  Association  have  a  rule  providing  that  'any  man  found  run- 
ning, or  working  beyond  a  regular  speed,  shall  be  fined  2s.  dd.  for  the 
first  offense,  /5s.  for  the  second,  10s.  for  the  third,  and  if  still  i)ersisting 
shall  be  dealt  with  as  the  committee  think  proper.'     As  also  shall  be 

•  any  man  working  short-handed,  without  man  for  man.'  ....  At  Liv- 
erpool, a  brick-layer's  laborer  may  legally  carry  as  many  as  twelve  bricks 
at  a  time.  Elsewhere  ten  is  the  greatest  number  allowed.  But  at  Leeds 
•any  brother  in  the  Union  professing  to  carry  more  than  the  common 


2^0  TRADES-UNIONISM.     II. 

number,  which  is  eight  bricks,  shall  be  fined  Is.;'  and  <iny  brother 
'  knowing  the  same  without  giving  the  earliest  information  thereof  to 
the  committee  of  management,  shall  be  fined  the  same.'  ....  During 
the  building  of  the  Manchester  Law  Courts,  the  brick  -  layers'  laborers 
struck  because  they  were  desired  to  wheel  bricks  instead  of  carrying 
them  on  their  shoulders." 

The  purpose  and  general  tendency  of  these  regulations  can 
not  be  mistaken.  Their  object  is,  by  enforcing  uneconomical 
methods,  and  proscribing  recourse  to  the  facilities  offered  by 
nature  and  circumstances,  to  create  a  necessity  for  work  which 
otherwise  would  not  have  existed.  The  code  is,  from  first  to 
last,  an  example  of  that  view  of  Political  Economy  of  which 
the  culminating  triumph  would  be  the  exclusion  of  the  light 
of  the  sun.  It  must  be  admitted  at  once  that  the  method  is 
not  devoid  of  a  certain  efficacy.  It  does  tend  to  cause  a  larger 
capital  to  be  invested  in  certain  trades  than  would  otherwise 
find  entrance  to  them,  and  thus  either  to  raise  the  rate  of 
wages  in  them,  or  to  increase  the  number  of  laborers  emploj'ed 
at  a  given  rate.  •  So  much  must  be  admitted.  But  then  this 
end  is  attained  at  the  cost  of  diminishing  the  sum  total  of  re- 
sult from  human  industry,  so  that  whatever  gain  it  procures  for 
the  individuals  or  classes  who  benefit  by  it  is  necessarily  pur- 
chased at  the  cost  of  inflicting  a  more  titan  equivalent  loss  on  so- 
ciety as  a  whole.  I  say  a  more  than  equivalent  loss;  for  the 
total  return  upon  industry  being  diminished  by  this  preposter- 
ous policy,  while  the  share  of  certain  chisses  is  increased,  it  is 
))lain  that  what  falls  to  the  remainder  will  be  less,  not  merely 
by  what  the  former  gain,  but  by  this  plus  the  lo.ss  upon  the 
(Mitire  social  fund.  The  sort  of  selfishness,  therefore,  embodied 
in  these  rules  of  Trades-Unions  is  not  selfishness  of  the  ordi- 
nar}^  humdrum  kind,  which  merely  grasps  for  one's  self  what 
would  fairly  have  gone  to  another,  but  that  more  extreme  form 
ofthe  propensity  which  is  ready  to  inflict  a  great  evil  on  anoth- 
er in  order  to  secure  a  small  good  for  one's  self — to  burn  down 


RULES  FOR  "MAKING  WORK."  :;iHI 

our  neighbor's  Louse  in  order  to  roast  our  own  es'ir.  Nor  is 
this  the  most  serious  objection  to  this  portion  of  the  Unionist 
code.  It  carries  the  deeper  stigma  of  sinning  against  the  in- 
terests of  civilization  itself;  for  its  spirit  is  antagonistic  to  all 
progress  and  improvement,  and,  if  it  did  not  carry  us  back,  as 
logically  it  ought,  to  a  rejection  of  all  the  labor-saving  contriv- 
ances and  aids  which  art  and  science  have  won  for  industry, 
would,  at  the  very  least,  tend  to  stereotype  industrial  operations 
in  their  existing  forms.  The  very  meaning  of  industrial  prog- 
ress is  the  increase  of  the  productive  result  in  proportion  to 
the  labor  undergone ;  while  the  direct  tendency  of  the  rules  in 
question  is  toincrease  the  labor  undergone  in  proportion  to  the 
productive  result.  I  am  far,  indeed,  from  desiring  to  charge 
these  consequences,  as  a  deliberate  purpose,  on  the  Unionist 
leaders,  and  still  less  on  the  workmen  who  have  accepted  and 
acted  on  their  legislation.  On  the  contrary,  I  am  persuaded 
that  the  true  character  of  those  regulations  is  either  entirely 
misconceived,  or,  at  the  utmost,  most  inadequate!}^  appreciated, 
by  those  for  whose  benefit  they  are  intended.  The  view  which 
has  suggested  them,  far  from  being  confined  to  the  working- 
classes,  has,  as  we  have  seen,  found  for  its  champion  so  able  and 
dispassionate  a  writer  as  Mr.  Thornton,  who,  while  denouncing 
in  language  which  certainly  leaves  nothing  to  be  desired  in 
point  of  vigor  and  heartiness  those  elaborate  contrivances  for 
rendering  man's  position  in  the  world  worse  than  it  might  be, 
has  himself  furnished  the  theoretical  premises  which  would  be 
quite  sufficient,  if  only  they  were  well  founded,  to  justify  the 
most  extravagant  of  the  acts  which  he  reprobates.  It  must 
also  be  frankly  confessed,  with  reference  to  this  as  with  refer- 
ence to  other  parts  of  the  Unionist  policy,  that  the  better-off" 
classes  of  society  are  by  no  means  entitled  to  plume  themselves 
at  the  expense  of  the  workmen.  In  the  practice  of  the  legal 
profession,  e.  g.,  there  would,  I  fancy,  be  no  difficulty  in  finding 
usages,  not  yet  perhaps  quite  obsolete,  conceived  in  this  same 


262  TRADES-  UNIONISM.— II. 

spirit  of  aggrandizing  a  calling  by  "making  work"  for  its 
members.  One  has  only  to  watch  the  progress  of  an  ordinary 
Chancery  suit,  or  to  read  through  an  ordinary  deed,  to  find  ex- 
amples which  would  scarcely  lose  in  lustre  by  being  placed  be- 
side some  of  the  brightest  of  those  furnished  by  the  Manches- 
ter Brick-layers'  Association.  What,  indeed,  is  the  opposition 
given  to  law  reform  by  too  large  a  section  of  the  legal  profes- 
sion but  a  flagrant  example  of  this  very  spirit — a  readiness  to 
sacrifice  the  interests  of  society  at  large  to  those  of  the  legal 
profession,  to  arrest  the  progress  of  social  improvement,  in 
order  that  work  may  be  found  for  a  few  lawyers  the  more? 
The  notion  of  aggrandizing  one's  order  by  "making  work" 
for  it  may  assume  in  Trades-Union  codes  a  somewhat  more  ex- 
travagant and  grotesque  form  than  elsewhere;  but  the  princi- 
ple itself  is  deeply  embedded  in  the  practical  modes  of  think- 
ing and  acting  of  nearly  all  classes;  and  it  therefore  needs  all 
the  more  to  have  its  true  character  and  tendencies  laid  bare 
without  reserve,  and  to  be  duly  stigmatized  as  the  most  in- 
tensely selfish  and  the  most  flagrantly  anti-social  of  all  the 
plans  of  conduct  by  which,  at  various  times,  different  classes 
of  society  have  attempted,  in  disregard  of  the  general  social 
weal,  to  advance  their  several  interests. 


CHAPTER  V. 

PRACTICAL  DEDUCTIONS  FROM  THE  FOREGO JNO  PRINCIPLES. 

§  1.  In  the  foregoing  chapters  the  theoretical  conditions  gov- 
erning the  position  of  the  laborer  and  the  rate  of  his  remuner- 
ation, have,  it  is  to  be  hoped,  been  pretty  fully  set  forth.  It 
remains  now  to  consider  the  practical  conclusions,  in  relation 
to  his  actual  condition  and  future  prospects,  which  may  be 
drawn  from  the.  premises  thus  furnished. 

But  at  this  point  an  objection  would  probably  be  interposed 
by  a  certain  class  of  thinkers  on  social  subjects,  and  I  may  be 
challenged  to  say  why,  conceding  the  economic  principles  af- 
fecting the  subject  to  be  such  as  I  have  stated  them,  the  dis- 
tribution of  the  produce  of  industry  should  be  left  to  be  de- 
termined by  those  principles;  why  it  should  not  rather  be  reg- 
ulated by  the  laws  of  justice?  In  answer  to  which  I  must 
reply,  in  the  first  place,  that  I  am  unaware  of  any  rule  of  justice 
applicable  to  the  problem  of  distributing  the  produce  of  in- 
dustry ;  and,  secondly,  that  any  attempt  to  give  effect  to  what 
are  considered  the  dictates  of  justice,  which  should  involve  as 
a  means  toward  that  end  a  disturbance  of  the  fundamental  as- 
sumptions on  which  economic  reasoning  is  based — more  espe- 
cially those  of  the  right  of  private  property  and  the  freedom 
of  individual  industry — would,  in  my  opinion,  putting  all  other 
than  material  considerations  aside,  be  inevitably  followed  by 
the  destruction  or  indefinite  curtailment  of  the  fund  itself  from 
which  the  remuneration  of  all  classes  is  derived. 

§  2.  If  justice  be  the  principle  according  to  which  the  pro- 
ceeds of  industry  ought  to  be  distributed,  those  who  advocate 


•264  PRACTICAL  DEDUCTIONS. 

this  mode  of  distribution  are  bound  to  produce  some  work- 
ing rule  according  to  which  the  prmciple  they  contend  for 
is  to  be  carried  into  effect.  Several  such  rules  have  indeed 
been  propounded,  and  others  may  easily  be  imagined,  which  _ 
would  have  quite  as  good  a  title  to  the  claim  of  representing 
natural  justice  as  any  that  have  been  advanced  by  social 
reformers.  For  Example,  it  has  been  held  by  one  social  re- 
former that  the  rule  of  distribution  required  by  justice  is  that 
indicated  by  the  wants  of  human  beings  and  the  degree  of 
their  urgency,  in  accordance  with  which  view  the  formula 
of  distributive  justice  would  be  —  "to  each  according  to  his 
wants."  In  the  opinion  of  another,  distribution  ought  to  be 
regulated  by  the  degree  in  which  each  has  contributed  by 
his  efforts  to  the  fund  available  for  distribution;  the  formula 
of  distributive  justice  becoming  in  this  case — "to  each  ac- 
cording to  his  works."  And  perhaps  as  plausible  a  principle 
as  either  might  be  constructed  by  founding  the  rule  of  distri- 
bution on  the  proportional  sacrifice  undergone  by  those  who 
take  part  in  the  work  of  productive  industry;  in  which  case 
we  should  have  as  our  formula  —  "to  each  according  to  his 
sacrifice."  As  to  the  amount  of  truth  or  morality  which  these 
several  maxims  embody,  I  am  not  concerned  hei-e  to  inquire. 
My  business  with  them  has  reference  exclusively  to  their  effi- 
cacy as  rules  for  regulating  the  distribution  of  wealth.  But  in 
proceeding  to  examine  them  with  this  view,  I  am  anxious  to 
disclaim  all  desire  to  disparage  the  ideals  of  human  life  which 
they  suggest,  provided  they  be  regarded  simply  as  ideals — as  a 
goal  toward  which  one  may  work  and  strive,  due  consideration 
being  had  of  the  actual  circumstances  of  the  external  world, 
and  of  the  character,  as  hitherto  actually  developed,  of  human 
beings  residing  upon  it:  indeed,  so  far  from  this,  I  have  no 
hesitation  in  admitting  that  the  realization  of  any  one  of  them 
would  imply  a  condition  of  society  incomparably  superior  to 
any  that  now  exists,  or  is  likely  for  a  long  time  to  exist.     So 


SOCIALIST  MAXIMS.  265 

far   I   am   quite   prepared    to  join   in   socialistic  aspirations. 

Where  I  take  issue  with  the  Sociahsts  is  as  to  the  present 

t 
feasibihty  of  their  schemes,  and  as  to  the  means  by  which  the 

ends  they  desire  are  to  be  promoted.  I  altogether  deny  that 
in  the  actual  circumstances  of  mankind  the  distribution  of 
wealth  on  the  principles  they  contend  for  is  feasible;  and  I  be- 
lieve that  the  attempt  to  carry  those  principles  into  effect  by 
invoking  for  this  purpose  the  powers  of  the  State — which  I 
take  to  be  the  essential  characteristic  of  Socialism,  and  that 
which  broadly  distinguishes  it  from  other  modes  of  socy.d  spec- 
ulation^'— could  only  issue  in  disaster  and  ruin. 


*  In  this  I  venture  to  ditfer  from  the  great  man  recently  taken  from  among  us, 
whom  I  am  proud  to  call  my  friend  and  teacher.  In  a  remarkable  passage  of  the 
•'Autobiography,"  Mr.  Mill  represents  himself  as  properly  classed  "  under  the  gen- 
eral designation  of  Socialists,"  because  his  ideal  of  ultimate  improvement  had  more 
in  common  with  that  of  Socialistic  reformers  than  with  the  views  of  those  who 
in  contradistinction  would  be  called  orthodox.  "While  we  repudiated  with  the 
greatest  energy  that  tyranny  of  society  over  the  individual  which  most  socialistic 
systems  are  supposed  to  involve,  we  yet  looked  forward  to  a  time  when  society 
will  no  longer  he  divided  into  the  idle  and  the  industrious ;  when  the  rule  that 
they  who  do  not  work  shall  not  eat  will  be  applied,  not  to  paupers  only,  but  im- 
partially to  all ;  when  the  division  of  the  produce  of  labor,  instead  of  depending, 
as  in  so  great  a  degree  it  now  does,  on  the  accident  of  birth,  will  be  made  by  con- 
cert on  an  acknowledged  principle  of  justice;  and  when  it  will  no  longer  either  be, 
or  be  thought  to  be,  impossible  for  human  beings  to  exert  themselves  strenuously  in 
procuring  benefits  which  are  not  to  be  exclusively  their  own,  but  to  be  shared  with 
the  society  they  belong  to."  ("Autobiography,"  pp.  231,  232.)  If  to  look  forward 
to  such  a  state  of  things  as  an  ideal  to  be  striven  for  is  Socialism,  I  at  once  acknowl- 
edge myself  a  Socialist;  but  it  seems  to  me  that  the  idea  which  "Socialism  "  con- 
veys to  most  minds  is  not  that  of  any  particular  form  of  society  to  be  realized  at 
a  future  time  when  the  character  of  himian  beings  and  the  conditions  of  human 
life  are  widely  different  from  what  they  now  are,  but  rather  certain  modes  of  ac- 
tion— more  especially  the  employment  of  the  powers  of  the  State  for  the  instant 
accomplishment  of  ideal  schemes,  which  is  the  invariable  attribute  of  all  projects 
generally  regarded  as  Socialistic.  So  entirely  is  this  the  case,  that  it  is  common 
to  hear  any  proposal  which  is  thought  to  involve  an  undue  extension  of  the  powers 
of  the  State  branded  as  Socialistic,  whatever  be  the  object  it  may  seek  to  accom- 
plish.    After  all,  the  question  is  one  of  nomenclature  merely;  but  people  are  so 


266  PRACTICAL  DEDUCTIONS. 

§  3.  As  res:ards  the  first  of  the  formulas  to  which  I  have 
referred,  which  proposes  to  distribute  the  wealth  of  a  commu- 
nity among  its  members  in  proportion  to  their  wants,  I  must 
frankly  acknowledge  that  I  am  wholly  unable  even  to  con- 
jecture the  method  of  its  application.  How  are  the  wants  of 
individuals  to  be  ascertained  ?  Is  it  to  be  left  to  each  to  de- 
scribe his  own  wants  ?  And  if  the  funds  are  not  adequate 
to  meet  the  requirements  of  all,  who  is  to  decide  as  to  which 
wants  are  the  most  urgent?  A  man  with  a  large  family  has 
greater  wants  than  a  man  with  a  small  one.  Does  this  consti- 
tute a  title  to  a  proportionally  larger  share  of  the  proceeds 
of  industry?  And  if  so,  what  is  to  keep  the  population  of  a 
country  within  the  necessary  limits  of  the  means  of  subsist- 
ence ?  Such  are  some  of  the  questions  which  meet  us  on  the 
threshold  in  seeking  to  apply  this  formula,  every  one  of  which, 
it  seems  to  me,  leads  us  straight  into  a  cul  de  sac.  I  must 
therefore  put  aside  this  particular  form  of  the  law  of  distribu- 
tive justice  as  for  me  utterly  unmanageable.  The  two  latter 
principles,  however,  of  which  one  would  assign  wealth  to  each 
person  in  proportion  to  the  work  he  has  accomplished,  and  the 
other  in  proportion  to  the  sacrifice  he  has  undergone,  are  not 
at  once  and  obviously  impracticable;  and  in  point  of  fact  both 
one  and  the  other  do  exert,  under  our  existing  system  of  in- 
dustrj^  a  certain  influence  in  determining  the  distribution  of 
wealth.  For  example,  wherever  the  results  of  industry  admit 
of  being  measured  and  compared,  as  in  all  work  of  the  same 
kind,  the  remuneration  of  the  workman,  if  only  competition  is 
effective,  naturally  adjusts  itself  to  the  results  of  his  work.  A 
workman  who  in  a  given  time  can  perform  twice  as  much  of 
a  given  work  as  another  will  in  an  open  market  command 
twice  as  much  wages.     But  where  the  results  of  industry  are 

greatly  governed  by  words  that  I  caIn  not  but  regret  that  a  philosophy  of  social  life 
with  which  I  so  deeply  sympathize  should  be  prejudiced  by  verbal  associations  fit- 
ted, as  it  seems  to  me,  only  to  mislead. 


RULE  OF  SACRIFICE.  267 

different  in  kind,  how  is  the  rule  of  distribution  in  proportion 
to  results  to  be  applied?  One  man  in  a  day  produces  a  coat, 
another  a  table,  a  third  superintends  a  body  of  workmen — by 
what  standard  shall  we  measure  these  several  results,  and  say 
that  any  of  them  is  greater  or  less  than  any  other?  It  is  plain 
that  the  rule  of  distribution  in  proportion  to  results  fails  us  ut- 
terly here.  Similarly,  the  principle  of  distribution  in  propor- 
tion to  sacrifice  has  also,  under  our  present  regime  (as  was  seen 
in  a  former  portion  of  this  work),  a  certain  operation  in  deter- 
mining the  distribution  of  wealth.  It  is  indeed  the  ruling  prin- 
ciple of  distribution  wherever  competition  among  producers  is 
really  free.  But,  as  was  then  pointed  out,  the  field  of  compe- 
tition, though  large,  is  far  from  being  co-extensive  with  the  in- 
dustry of  any  country,  and,  in  the  absence  of  competition,  it 
is  not  easy  to  see  how  relative  sacrifice  is  to  be  determined. 
More  particularly  does  this  difficulty  become  formidable  when 
we  come  to  deal  with  what  may  be  regarded  as  the  crucial 
problem  of  distribution — the  distribution  of  the  proceeds  of  in- 
dustry between  laborer  and  capitalist.  Even  could  the  claims 
of  laborers  as  among  themselves  be  adjusted,  there  would  still 
remain  this  problem,  which  the  least  consideration  of  the  facts 
involved  will  show  to  be  wholly  unamenable  to  a  priori  treat- 
ment, whatever  be  the  form  which  the  rule  of  justice  may 
assume. 

Let  us  suppose,  for  example,  a  benevolent  despot  desirous  of 
applying  to  this  case  what  we  may  describe  as  the  principle  of 
efficiency — "  to  each  according  to  his  works."  He  finds  that 
a  house  has  been  built  by  the  combined  action  of  a  master- 
builder  and  workmen :  the  former  has  supplied  the  materials 
for  the  building  and  the  means  of  supporting  the  laborers  dur- 
ing the  performance  of  the  work,  the  latter  have  furnished  the 
labor  :  how  is  our  despot  to  determine  how  much  of  the  house 
or  of  its  value  is  to  be  credited  respectively  to  him  who  has 
supplied  the  capital,  and  to  those  who  by  their  labor  have  con- 


268  PRACTICAL  DEDUCTIONS. 

verted  this 'capital  into  a  house?  Again,  a  master-tailor  sup- 
plies a  sewing-machine  and  cloth  ;  journeymen  tailors  go  to 
work  on  these  articles,  and  a  suit  of  clothes  is  the  result — what 
proportion  of  the  clothes  is  to  be  credited  respectively  to  the 
machine  and  to  the  workmen  ?  It  is  only  necessary  to  pro- 
pound such  questions  to  perceive  that  thej^  are  absolutely  in- 
soluble. As  well  might  we  seek  to  determine  the  proportions 
in  which  the  oxj^gen,  the  hj'drogen,  and  the  electric  flash  have 
contributed  to  the  drop  of  water  which  results  from  their  com- 
bined action.  ISTor  would  the  standard  of  relative  sacrifice  be 
any  more  to  our  purpose  here.  As  I  have  already  remarked, 
it  is  not  easy  to  see  how  relative  sacrifice  is  to  be  estimated  in 
the  absence  of  competition ;  and  more  particularly  is  this  the 
case  where  the  sacrifices  to  be  compared  take  forms  so  widely 
different  in  character  as  those  undergone  by  laborer  and  capi- 
talist. What  are  those  sacrifices?  On  the  one  hand,  certain 
physical  and  mental  efforts,  involving  weariness,  exhaustion, 
and  sometimes  positive  pain ;  on  the  other,  a  mere  abstinence 
from  enjo3'ment  which  might  have  been  indulged  in,  accom- 
panied with  a  certain  sense  of  insecurity  as  to  the  issue  of  an 
undertaking.  Who  can  compare  and  appraise  two  such  sacri- 
fices, and  undertake  to  assign  to  each  its  due  reward?  Mani- 
festly at  this  point,  the  principle  of  sacrifice,  no  less  than  that 
of  efficiency,  inevitably  breaks  down.  Even  could  they  have 
solved  all  other  cases,  we  are  forced  to  confess  that,  in  pres- 
ence of  the  most  important  and  pressing  of  all  —  the  relative 
claims  of  labor  and  capital — both  principles  are  impotent  alike. 
Right  or  wrong,  therefore,  they  are  inapplicable  to  the  ques- 
tion in  hand,  and  so  will  not  serve  our  turn. 

§  4.  I  am  thus  unable  to  find  in  the  maxims  of  abstract  jus- 
tice any  key  to  the  practical  problems  of  the  distribution  of 
wealth;  and  I  am  bound  to  add,  that  just  as  little  can  I  dis- 
cover in  the  actual  results  flowinsr  from  the  action  of  econom 


JUSTICE  AND  ECONOMIC  LAW.  269 

ical  laws  a  realization  of  the  principles  of  abstract  justice. 
There  is  indeed  a  school  of  economists,  of  whom  M.  Bastiat 
may  be  taken  as  the  prophet,  who  have  persuaded  themselves 
that  such  a  realization  is  in  fact  accomplished,  who  hold  that 
the  distribution  of  wealth  which  results  from  the  free  play  ol' 
economic  forces  is  not  merely  that  which  the  circumstances  of 
the  case  render  inevitable,  but  also  that  which  justice  and  nat- 
ural right  prescribe.  I  must  frankly  own  that  I  am  wholly 
unable  to  concur  in  this  view.  For  when  I  look  into  the  na- 
tui'e  of  those  economic  forces  on  the  play  of  which  the  actual 
distribution  of  wealth  in  this  and  other  civilized  countries  de- 
pends, what  do  I  find?  Certain  physical,  phj^siological,  and 
mental  conditions  —  on  the  one  hand,  a  productive  capacity 
in  the  soil  and  other  natural  agents;  on  the  other,  certain  ele- 
ments in  the  character  of  the  people,  such  as  the  desire  to 
accumulate  wealth  and  provide  for  the  future,  and  constant- 
ly counteracting  this,  a  love  of  present  ease  and  indulgence : 
lastly,  the  animal  propensities  which  continue  and  multiply 
the  race.  These  are  the  forces  which,  coming  into  play  undei' 
a  regime  of  private  property  and  freedom  of  individual  indus 
try  and  enterprise,  determine  the  proportions  in  which  wealth 
is  divided  among  a  people.  But  what  is  there  in  such  cir- 
cumstances to  make  it  nccessar}^  that  the  distribution  which 
results  shall  be  in  conformity  vvith  what  our  ideas  of  justice 
would  requii'c?  What  is  there  in  the  case  to  securfe  that  the 
action  shall  always  be  in  the  lines  of  moral  right?  The  agen- 
cies in  operation  arc  essentially  out  of  the  moral  sphere;  and 
if  it  should  in  fact  happen  that  the  results  arising  from  their 
free  action  in  any  given  case  prove  to  be  in  strict  accordance 
with  the  claims  of  moral  justice,  and  with  so-called  "natural 
rights,"  I  do  not  see  that  we  should  be  justified  in  regarding 
the  coincidence  as  other  than  a  fortunate  accident.  In  point 
of  fact,  the  practical  consequences  accruing  from  the  condi- 
tions of  industry  in  this  and  other  civilized  countries  are  not 


270  PEACTICAL  DEDUCTIONS. 

such  as,  for  m}^  part,  I  should  find  it  easy  to  reconcile  with 
any  standard  of  right  generally  accepted  among  men.* 

§  5.  It  seems  to  follow  from  these  considerations  that  while, 
on  the  one  hand,  mere  standards  of  abstract  justice  or  natural 
right  are  inefficacious  as  means  of  solving  the  actual  problems 
of  the  distribution  of  wealth,  on  the  other  the  solution  actual- 
ly effected  of  those  problems  under  our  existing  system  of  in- 
dustry is  not  such  as  entitles  us  to  claim  for  it,  as  a  necessary 
consequence  of  the  agencies  through  which  it  is  worked  out, 
the  character  of  satisfying  the  requirements  of  moral  justice. 
If  our  present  system  of  industrj^  is  to  be  justified,  it  must,  ac- 
cording to  my  view,  find  its  justification  in  quite  another  or- 
der of  ideas  than  those  of  abstract  right  or  natural  law — name- 
ly, in  the  considerations  of  practical  utility ;  and  more  specif- 
ically in  the  fact  that  it  secures  for  the  mass  of  mankind  a 
greater  amount  of  material  and  moral  well-being,  and  provides 
more  effectually  for  their  progress  in  civilization,  than  any  oth- 
er plan  that  has  been  yet,  or  apparently  can  be,  devised. 

By  our  present  system  of  industry,  let  me  here  explain,  I 
mean  simply  the  industrial  arrangements  and  the  mode  of 
distributing  wealth  which  prevail  in  this  and  other  civilized 
countries,  so  far,  and  so  far  only,  as  these  result  from  the  rec- 
ognition of  private  property  and  freedom  of  individual  indus- 
try and  enterprise.  These  latter  institutions,  it  is  true,  are  far 
from  representing  fixed  and  absolute  conditions;  and  the  mod- 
ifications with  which  they  are  affected  in  different  countries 
lead  to  important  differences  in  the  practical  outcome  accruing 
from  their  maintenance.     Into  the  question  of  such  modifica 


*  I  may  here  jU  least  rlaiin  Shakspeave  as  an  aiitliovit}'  on  my  side : 

"Take  pliysic,  Pomp, 
Expose  tliyself  to  feel  what  wretches  feel ; 
That  thou  may'st  shake  the  supeiHiix  to  tiiem, 
And  slivw  the  htavens  more  just." 


GROUNDS  OF  DEFENSE.  271 

tions  I  do  not  enter  here.  The  issue  taken  bj  those  who  ad- 
vance socialistic  objections,  founded  on  allegations  of  inequali- 
ty and  injustice,  against  existing  industrial  arrangements,  has 
regard  to  the  principles  themselves,  not  to  their  modifications ; 
and,  therefore,  in  defending  these  arrangements  against  such 
objections,  it  is  with  the  principles  alone  that  we  need  con- 
cern ourselves.  Nor,  indeed,  have  I  any  need  here  to  enter  at 
large  into  the  controversy  between  Communism  and  private 
property.  That  question  may  now,  I  think,  be  said  to  be,  so 
far  as  argument  can  carry  it,  sufficiently  disposed  of:  at  all 
events,  I  could  hope  to  add  nothing  to  what  Mr.  Mill  has  so 
admirably  said  in  his  examination  of  the  subject — an  exami- 
nation not  less  remarkable  for  its  thoroug-hness  than  for  the 
candor,  and  even  tenderness  toward  those  whose  opinions  he 
opposes,  which  it  displays.  But,  without  entering  into  the 
general  question,  I  may  venture  to  point  out  one  capital  con- 
sideration of  a  purely  economic  kind  which,  apart  from  the 
reasons,  chiefly  moral  and  political,  relied  on  by  Mr.  Mill,  ap- 
pears to  me  to  justify  the  opinion  in  favor  of  our  existing  sys- 
tem of  industry  in  its  essential  circumstances  which  I  have 
ventured  to  express. 

I  take  it  to  be  a  fundamental  and  indispensable  condition 
of  all  progressive  human  society,  that  by  some  means  or  other 
a  large  aggregate  capital  available  for  its  requirements  should 
be  provided.  Without  such  a  fund,  accumulated  from  the 
products  of  past  toil,  division  of  labor  and  continuous  industry 
are  impossible;  population  can  not  attain  the  degree  of  density 
indispensable  to  civilized  existence;  nor  can  that  amount  of 
leisure  from  physical  toil  be  secured  for  any  considerable  por- 
tion of  the  people,  which  is  required  for  the  cultivation  of 
science  and  literature.  The  maintenance,  therefore,  of  an  ag- 
gregate capital  capable  of  providing  for  these  requirements 
must  be  regarded  as  an  indispensable  condition  to  be  fulfilled 
by  every  industrial  system  which  undertakes  to  promote  the 


272  PRACTICAL  DEDUCTIONS. 

well-being  and  progress  of  mankind.  Now  cur  economic 
investigations  have  shown  us  that  this  end,  the  storing  up 
of  the  products  of  past  industry  for  the  purpose  of  sustaining 
and  assisting  present  industry,  can  only  be  attained  at  the 
cost  of  certain  sacrifices — those  sacrifices,  namely,  implied  in 
foregoing  the  immediate  use  of  what  people  have  the  power 
of  using,  and  in  incurring  the  risk  which  attaches  in  a  great- 
er or  less  degree  to  all  industrial  investment.  These  sac- 
rifices mav  be  regarded  as  trivial  or  severe;  but,  as  a  mat- 
ter  of  fact,  they  will  not  be  undergone  without  an  adequate 
motive  in  the  form  of  a  compensating  reward.  Such  a  mo- 
tive our  present  system  of  industry  provides  in  the  mainte- 
nance of  private  property  and  industrial  freedom.  The  pros- 
pect of  profit  is  the  prospect  of  enjoying  as  propert}^  the 
results  of  industrial  investment;  and  this  prospect  under  a 
system  of  industrial  freedom  is  thrown  open  to  all  who  are 
in  possession  of  wealth.  The  inducement  thus  offered  to  the 
acquisitive  propensity  in  man  constitutes,  under  the  actual 
system  of  things,  the  great  spring  and  support  of  productive 
capital,  and,  in  the  last  resort,  the  ultimate  security  for  all  th(> 
results  which  go  to  form  our  material  civilization.  The  feel- 
ing appejiled  to  may,  if  j'ou  like,  be  a  coarse  one,  but  it  is  at 
any  rate  efficacious;  it  does  lead  to  habitual  and  systematic 
saving,  and  furnishes  society  with  the  necessary  material  basis 
for  civilized  progress.  But  this  motive  every  system  which 
annuls  private  property  and  freedom  of  individual  industry 
takes  awa}^ ;  and  the  question  is,  What  do  such  systems  sup- 
ply in  its  place?  Two  possible  substitutes,  so  far  as  I  know, 
and  two  only,  have  been  or  can  be  suggested — benevolence 
and  public  spirit.  I  should  be  very  unwilling'  to  disparage 
such  principles  of  action,  or  to  deny  that  they  arc  at  present 
extensively  influential  in  human  affairs;  but  I  can  not'affect 
to  believe  that  either,  or  that  both  together  —  taking  human 
beings,  not  as  in   tlie  progress  of  human  improvement  they 


REMUNERATION  OF  INDUSTRY.  273 

may  possibly  become,  but  as  we  now  actually  find  them — 
could  be  trusted  to  supply  the  place  of  that  desire  for  individ- 
ual advancement  and  well-being  to  whicii  the  institutions  of 
private  property  and  industrial  freedom  make  appeal.  I  am, 
therefore,  unable  to  see  how  any  system,  which  relies  upon  no 
stronger  or  more  universal  elements  of  human  character  than 
these  for  its  support,  can  fulfill  that  primary  and  indispensable 
condition  of  all  progressive  society — the  providing  of  a  mate- 
rial basis  for  civilization  in  the  form  of  an  accumulated  capital. 

§  6.  So  much  I  have  thought  it  well  to  say  in  justification 
of  the  fundamental  bases  of  our  present  industrial  system :  it 
remains  to  consider  what  are  the  prospects  offered  by  the  sys- 
tem to  the  working-classes  living  under  it,  taking  their  con- 
dition to  be  governed  by  the  economic  laws  developed  in  the 
previous  portions  of  this  work. 

The  remuneration  of  industry,  as  we  there  saw,  is  derived 
from,  and  therefore  must  be  limited  by,  the  products  which 
result  from  its  exercise.  In  this  exercise  two  distinct  func- 
tions are  embraced  —  that  performed  by  labor  and  that  per- 
formed by  capital,  each  implying  a  sacrifice  and  demanding  a 
reward.  To  the  share  of  the  produce  to  be  assigned  to  the 
laborer  Nature  has  herself  very  obviously  set  a  minimum  lim- 
it in  the  requirements  essential  to  his  existence:  it  can  never 
permanently  be  less  than  will  suffice  to  support,  in  such  phys- 
ical and  mental  strength  as  the  work  performed  calls  for,  those 
who  carry  it  on.  On  the  other  hand,  the  capitalist's  share  also 
finds  a  minimum  limit  in  his  disposition  and  character:  it  must 
at  least  be  such  as  shall  seem  to  him  a  sufficient  compensation 
for  the  sacrifices  which  he  incurs  in  investment,  and  will,  there- 
fore, in  a  given  community  be  high  or  low,  according  as  that 
element  of  character  designated  by  Mr.  Mill  "  the  effective  de- 
sire of  accumulation"  is  weak  or  strong.  It  follows  from  this 
that,  in  order  to  the  systematic  prosecution  of  industry,  the 

18 


274  PRACTICAL  DEDUCTIONS. 

produce  resulting  must  at  least  be  sufficiently  great  to  cover 
both  these  requirements — to  yield,  that  is  to  say,  a  minimum 
wage  and  a  minimum  profit;  if  it  be  not  equal  to  this,  either 
labor  will  fail  for  want  of  support,  or  capital  will  cease  to  be 
invested  for  want  of  adequate  inducement.  But  the  produce 
may  be  indefinitely  greater  than  this ;  and  hence  arises  a  mar- 
gin of  return  over  and  above  what  the  satisfaction  of  the  min- 
ima of  wages  and  of  profits  demands.  Now  it  is  evident  that 
by  the  extent  of  this  fund  the  possibilities  of  the  laborer's  po- 
sition must,  under  all  circumstances,  be  bounded. 

Two  questions,  accordingl}',  here  at  once  arise;  first,  as  to 
the  possible  increase  of  this  margin  of  return  as  industry,  with 
the  progress  of  industrial  art,  becomes  more  productive ;  and, 
secondly,  as  to  the  degree  in  which  the  working -classes  are 
likely  to  appropriate  such  augmentation  as  may  accrue.  As 
regards  the  latter  point,  we  have  seen  that  profits  in  advan- 
cing communities  tend  to  a  minimum,  from  which  we  are  justi- 
fied in  concluding  that,  however  the  gain  may  for  a  time  be 
divided  between  capitalist  and  laborer,  the  permanent  tend- 
ency of  things  will  be  toward  an  absorption  of  the  whole  by 
wages.  In  whatever  degree,  therefore,  the  margin  of  the  re- 
turn on  industry,  beyond  what  is  needed  to  satisfy  the  minima 
of  wages  and  profits,  may  increase  with  the  progress  of  soci- 
ety, we  are  warranted  in  regarding  the  fund  thence  arising  as 
available  for  the  improvement  of  the  laborer's  condition.  The 
question  as  to  the  possibilities  of  his  future  —  supposing  him 
to  remain  as  at  present  a  mere  receiver  of  wages  —  thus  turns 
entirely  and  simply  upon  the  prospects  of  increase  in  this 
fund. 

And  here  I  regret  to  say  the  outlook  of  the  laborer  is  by  no 
means  so  bright  as  a  superficial  view  of  the  case  might  lead  us 
to  suppose.  Understanding  by  the  rate  of  wages  the  real  re- 
muneration of  the  laborer,  and  by  the  rate  of  profit  the  ratio  of 
the  return  upon  capital,  and  bearing  in  mind  that  wages  and 


FRODUCTIVENESS  OF  INDUSTRY.  275 

profits  are  derived  from,  and  in  fact  represent,  the  products  of 
industry,  it  might  seem  a  safe  position  to  assume  that  the  fund 
available  for  the  augmentation  of  the  rates  of  wages  and  profits 
would  increase  pari  passu  with  every  extension  of  the  power 
of  man  in  the  industrial  sphere.  Plausible,  however,  as  this 
position  seems,  we  may  easily  convince  ourselves  that  it  can 
not  possibly  be  true.  Let  us  consider  this  fact.  Within  the 
last  century  an  enormous  increase  has  taken  place  in  the  pro- 
ductiveness of  industry  in  Great  Britain.  A  given  exertion  of 
labor  and  capital  will  now  produce  in  a  great  many  directions 
five,  ten,  or  twenty  times,  in  some  instances  perhaps  one  hun- 
dred times,  the  result  which  an  equal  exertion  would  have  pro- 
duced a  hundred  years  ago:  it  is  not  probable  that  industry 
is  in  any  direction  whatever  less  productive  now  than  it  was 
then;  yet  the  rate  of  wages,  understanding  this  in  the  sense 
defined,  as  measured  by  the  real  well-being  of  the  laborer — 
though  some  improvement  no  doubt  has  taken  place  in  his 
condition  during  this  time- -has  certainly  not  advanced  in  any 
thing  like  a  corresponding  degree ;  while  it  may  be  doubted  if 
the  rate  of  profit  has  advanced  at  all.  If  we  were  to  take  the 
current  rate  of  interest  as  a  criterion,  we  should  be  inclmed 
to  say  that  it  had  even  positively  fallen.  It  is  certain,  at  all 
events,  that  neither  the  rate  of  wages  nor  the  rate  of  profits, 
nor  both  rates  combined,  have  experienced  any  increase  at  all 
commensurate  with  that  which  has  occurred  in  the  general  pro- 
ductiveness of  industry.  Some  one,  no  doubt,  has  benefited  by 
the  enlarged  power  of  man  over  material  nature;  the  world  is 
beyond  question  the  richer  for  it;  but  what  I  wish  to  call  at- 
tention to  is  that  the  gain,  however  realized,  does  not  show 
itself,  at  least  on  the  scale  of  its  actual  magnitude,  either  in  the 
real  remuneration  of  the  laborer,  or  yet  in  the  ratio  of  return 
upon  the  capitalist's  outlay. 

What,  then,  is  the  relation  of  the  productiveness  of  industry 
to  these  phenomena?  and  how  far  can  we  count  upon  the  prog- 


276!  PRACTICAL  DEDUCTIONS. 

ress  of  industrial  invention  and  improvement  for  enlarging 
that  margin  of  return  out  of  which  all  additions  to  the  mini- 
mum rates  of  wages  and  of  profits  must  be  made?  The  cor- 
rect answer  to  this  question  may,  I  think,  be  thus  stated : 
the  productiveness  of  industry  only  affects  the  rates  of  wages  and 
profits  in  so  far  as  it  results  in  a  cheapening  of  the  commodities 
which  enter  into  the  consump)tion  of  the  laborer.  This  is  a  point 
not  in  general  correctly  apprehended,  but  it  will  not  be  diffi- 
cult to  establish  its  truth.  Let  us  suppose  an  improvement  to 
take  place  in  the  mode  of  producing  an  article  consumed  only 
by  the  rich,  and  leading  to  a  cheapened  cost  of  production — 
what  happens?  .  Assuming  that  there  is  no  monopoly,  and  al- 
lowing time  for  supply  to  adjust  itself  to  demand,  there  will 
occur  a  fall  in  the  value  of  the  article  in  proportion  to  the 
fall  in  its  cost  of  production,  A  given  capital  will  yield  in. 
this  particular  commodity  a  larger  return,  but  this  increased 
return  will  only  possess  the  same  value  as  the  smaller  return 
previously  obtained.  The  ratio,  therefore,  of  the  value  pro- 
duced to  the  value  expended  will  remain  undisturbed.  It 
follows  that  an  improvement  in  industry  of  this  descrip- 
tion, however  it  may  temporarily  profit  individual  producers 
pending  the  adjustment  of  supply  to  the  altered  conditions  of 
demand,  has  no  tendency  to  raise  the  rate  of  profit.*  And 
it  is  sufficiently  evident  that  it  will  not  affect  the  remunera- 
tion of  labor.  Why  should  it?  It  has  not  increased  either 
the  capital  of  the  country  (for  the  cheapened  article  is  by  hy- 
pothesis an  article  of  luxurious  consumption)  or  the  value  of 
its  products.  The  laborer's  wages,  measured  in  money  (which 
we  assume  to  remain  constant  in  value)  continue  as  before,  and 
the  only  article  cheapened  is  one  which  by  hypothesis  he  does 

*  This  position  would  require  quiilification  if  the  article  of  luxurious  consump- 
tion which  I  have  supposed  to  be  cheapened  could  be  made  the  means,  through 
an  exchange  with  foreign  countries,  of  oljtnining  on  clieaper  terms  food  or  other 
laborer's  commodities. 


PRODUCTIVENESS  OF  INDUSTRY.  277 

not  consume.  If  I  am  asked,  Who  tlien  are  the  persons  who 
benefit  by  improvements  of  this  class?  I  answer,  those  who 
consume  the  commodity.  If  capitalists  are  consumers,  then 
they  will  benefit  05  conswners,  but  not  in  their  quality  of  re- 
ceivers of  profits.  They  will  receive  the  same  rate  of  return 
on  their  investment  as  before,  but  the  sum  resulting  from  this 
rate  of  return  will  give  them  a  larger  command  than  before 
over  the  articles  of  their  consumption.  We  thus  find  that  im- 
provements in  productive  industry,  where  they  apply  to  com- 
modities consumed  only  by  the  rich,  however  they  may  bene- 
fit the  rich,  have  no  tendency  to  raise  the  rate  of  profit ;  while 
they  leave  the  remuneration  of  the  laborer  entirely  unaffected. 
But  now  observe  the  consequence  of  improvements  of  another 
kind — those,  namely,  which  affect  commodities  entering  into 
the  consumption  of  the  laborer.  Here,  again,  as  in  the  case 
just  considered,  the  article  affected  by  the  improvement  would 
fall  in  price  in  proportion  to  the  cheapening  of  its  cost;  but 
one  or  other  of  the  following  consequences  would  also  happen : 
either  the  real  remuneration  of  the  laborer  would  increase  in 
proportion  to  the  cheapening  of  the  commodity  multiplied 
by  the  degree  in  which  it  entered  into  his  expenditure;  or, 
failing  this,  the  rate  of  profit  would  rise.  It  is  probable  that, 
in  the  first  instance  at  least,  the  former  result  is  that  whichv 
would  occur.  There  is  nothing  in  the  cheapening  of  an  arti- 
cle of  the  laborer's  consumption  to  diminish  the  investment 
of  capital  or  at  once  to  increase  the  supply  of  labor.  Money 
wages,  therefore  (the  value  of  money  being  assumed  to  remain 
constant),  would  continue  as  before,  and  the  laborer,  in  com- 
mon with  other  consumers,  would  reap  the  benefit  of  the  im- 
provement in  the  diminished  price  of  the  commodit}'.  If  this 
did  not  happen — if  money  wages  fell,  let  us  suppose,  so  as  just 
to  neutralize  the  cheapened  cost  of  the  commodity,  leaving  the 
laborer's  real  remuneration  unaffected — then  the  state  of  things 
would  impl}'  an  advance  in  the  rate  of  profit ;  for  the  price  of 


278  PRACTICAL  DEDUCTIONS. 

the  commodity  falling  in  proportion  as  its  cost  nad  diminished 
— that  is  to  say,  as  the  product  of  a  given  exertion  of  industry 
employed  in  making  it  had  increased — the  value  of  the  aggre- 
gate return  upon  industry  thus  employed  v^ould  be  the  same 
as  before;  but  the  value  of  the  outlay  upon  the  same  exertion 
of  industry  would  have  declined  in  consequence  of  the  fall  in 
money  wages,  and  the  ratio  of  the  return  to  the  outla}^,  that  is 
to  sa}',  the  rate  of  profit,  would  therefore  have  increased.  It 
is  thus  through  a  limited  class  of  commodities  only  that  the 
progress  of  industrj^  affects  either  the  rate  of  profit  or  the  la- 
borer's well-being;  in  other  directions  improvements  may  oc- 
cur and  commodities  be  indefinitely  cheapened  to  the  advan- 
tage of  consumers,  but  without  extending  in  the  least  that  mar- 
gin of  return  from  which  augmentations  of  wages  and  profits 
are  derived. 

And  now  I  am  in  a  position  to  explain  the  phenomenon  to 
which  I  have  called  attention — the  fact,  namely,  that  so  little 
impression  has  been  made  on  the  rate  of  wages  and  profits  by 
the  immense  industrial  progress  of  recent  times.  The  expla- 
nation lies  in  the  following  circumstances:  1st,  the  improve- 
ments have  to  a  very  large  extent  affected  commodities  not 
consumed  by  the  laborer ;  and,  so  far  as  this  has  been  the  case, 
there  is,  as  we  have  seen,  nothing  in  the  circumstance  of  an 
increase  in  industrial  efficiency  to  cause  an  advance  in  either 
wages  or  profits;  and,  2dly,  when  the  improvement  has  affect- 
ed commodities  consumed  by  the  laborer,  the  industrial  advan- 
tage gained  has  rarely  been  maintained  to  its  full  extent,  and 
frequently  after  a  time  has  been  entirely  lost.  What  has  hap- 
pened has  been  a  temporary  improvement  of  the  laborer's  con- 
dition, followed  by  an  increase  of  population  and  an  enlarged 
demand  for  the  cheapened  commodity.  Laborers'  commodi- 
ties, however,  are  for  the  most  part  commodities  of  raw  prod- 
uce, or  in  which  the  raw  material  constitutes  the  chief  ele- 
ment of  the  value  (clothing  is,  in  truth,  the  only  important  ex- 


IN  BELATION  TO  RENT.  27^) 

ception);  and  of  all  such  commodities  it  is  the  well-known  law 
that  an  augmentation  of  quantity  can  only  be  obtained,  other 
things  being  the  same,  at  an  increasing  proportional  cost.  Thus 
it  has  happened  that  the  gain  in  productiveness  obtained  bv 
proved  processes  has,  after  a  generation,  to  a  great  extent  been 
lost  —  lost,  that  is  to  say,  for  any  benefit  that  can  be  derived 
from  it  in  flivor  of  wages  or  profits;  and  though  our  industry 
is  conducted  with  greater  skill  than  formerly,  yet  being  emplov- 
ed  on  natural  agents  of  inferior  power  or  of  greater  remoteness, 
to  which  the  needs  of  an  increasing  population  have  compelled 
us  to  resort,  and  the  cost  of  the  portion  of  the  produce  raised 
from  those  inferior  natural  agents  being  that  which  governs 
the  price  of  the  whole  —  it  comes  to  pass  that  it  now  yields, 
capital  for  capital  and  effort  for  effort,  no  greater,  or  but  a 
slightly  greater,  return.  Not  indeed  that  the  introduction  of 
improved  processes  into  agriculture  has  been  for  naught:  it 
has  resulted  in  a  large  augmentation  of  the  aggregate  return 
obtained  from  the  soil,  but  without  permanently  lowering  its 
price,  and,  therefore,  without  permanent  advantage  to  either 
capitalist,  or  laborer,  or  to  other  consumers.  The  large  ad- 
dition to  the  wealth  of  the  country  has  gone  neither  to  profits 
nor  to  wages,  nor  yet  to  the  public  at  large,  but  to  swell  a 
fund  ever  growing  even  while  its  proprietors  sleep — the  rent- 
roll  of  the  owners  of  the  soil.  Accordingly  we  find  that,  not- 
withstanding the  vast  progress  of  agricultural  industry  effected 
within  a  century,  there  is  scarcely  an  important  agricultural 
product  that  is  not  nt  least  as  dear  now  as  it  was  a  hundred 
years  ago — as  dear  not  merely  in  money  price,  but  in  real  cost. 
The  aggregate  return  from  the  land  has  immensel}^  increased; 
but  the  cost  of  the  costliest  portion  of  the  produce,  which  is 
that  which  determines  the  price  of  the  whole,  remains  prett}'' 
nearly  as  it  was.  Profits,  therefore,  have  not  risen  at  all,  and 
the  real  remuneration  of  the  laborer,  taking  the  whole  field  of 
labor,  in  but  a  slight  degree — at  all  events  in  a  degree  verv 


280  PRACTICAL  DEDUCTIONS. 

far  from  commensurate  with  the  general  progress  of  indus- 
try* 

The  reader  will  not  fail  to  perceive  the  intimate  bearing  of 
the  conclusion  just  reached  upon  the  question  which  I  have 
proposed  for  discussion  in  this  chapter — the  prospect  of  im- 
provement in  the  laborer's  material  condition.  It  is  evident 
that  this  condition  is  by  no  means  so  linked  to  the  general 
progress  of  industrial  improvement  that  we  can  count  upon  an 
advance  in  it  pari  passu  with  that  progress.  A  very  consid- 
erable proportion  of  industrial  inventions  do  not  affect  his  well- 
being  at  all ;  while  with  regard  to  those  which,  by  cheapening 
the  commodities  of  his  consumption,  do  affect  his  well-being, 
the  condition  of  permanent  advantage  to  him  from  this  source 
is  that  his  numbers  shall  be  kept  within  such  limits  that  the 

*  "How," asks  Mr.  (now  Sir  William)  Harcourt,  "is  the  laborer  to  get  high- 
er wages,  and  yet  the  farmer  to  receive  a  reasonable  profit,  without  which  his  bus- 
iness can  not  be  carried  on  ?  There  is  only  one  way  in  which  it  can  be  done, 
and  that  is  by  increasing  the  productive  power  of  the  land,  which  is  the  fund  out 
of  which  both  the  wages  and  the  profit  must  be  realized.  Well,  how  is  the  pro- 
ductive power  of  the  land  to  be  increased?  The  answer  to  that,  too,  is  sim- 
ple enough,  and  is  universally  recognized,  by  applying  more  capital  to  the  soil " 
{Times,  Jan.  2,  1873).  It  does  not  seem  to  have  occurred  to  Mr.  Harcourt  that 
the  process  which  he  advocates  has  been  in  operation  on  a  great  scale  for  at  least 
a  century,  and  yet  that  the  agricultural  laborer  remains  pretty  nearly  where  he 
was  before  it  commenced.  Had  he  turned  to  Belgium,  he  would  have  seen  the 
same  experiment  in  operation  with  precisely  the  same  result.  Nowhere  has  cap- 
ital been  more  liberally  applied  to  the  cultivation  of  the  soil  than  in  Belgium,  and 
nowhere  is  agricultural  labor  more  wretchedly  paid  (see  Laveleye's  "L'£conomie 
Rurale  de  la  Belgique  ").  The  following  passage  may  be  commended  to  Sir  W. 
Ilarcourt's  notice:  "Malgre'  ces  differences  assez  notables,  le  mal  ge'neral  et  pro- 
fond  qu'on  ne  pent  se  dissimulcr,  c'est  qua  pen  pres  partout  le  salaire  des  ouvriers 
ngricoles  est  insiiffisant  pour  faire  face  iuix  besoins  de  leuis  families  dans  un  pays 
oil  les  denrees  atteignent  le  i)ius  liaiit  jnix  des  marches  ouropccMis.  La  statistique 
officielle  constate  elle-meme  cpie  la  popidation  rurale  de  la  Belgique  est  Time  des 
plus  mal  nourries  du  continent.  Les  produits  de  I'agriculture,  (lueiiine  abondants 
qu'ils  soient,  nc  siiffisant  point,  avec  la  re'parlitiun  actuelie,  jiour  douncr  "a  tons  une 
alimentation  convenable"  (p.  1^40). 


DISCOUBAGING  VROSPECTS.  281 

necessity  of  resorting  to  inferior  instruments  of  production 
shall  not  neutralize  the  gain  in  industrial  efficiency.  This, 
then — the  limitation  of  his  numbers — is  the  circumstance  on 
which,  in  the  last  resort,  any  improvement  at  all  of  a  perma- 
nent kind  in  the  laborer's  condition  turns.  For  my  own  part, 
I  ca)i  not  pretend  to  discern  in  the  circumstances  of  the  time 
any  solid  ground  for  feeling  sanguine  on  this  point,  at  least  so 
long  as  laborers  remain  what  they  are  mainly  at  present — mere 
laborers,  hired  employis  depending  for  each  day  on  the  result 
of  the  day's  work.  But  I  desire  to  go  further  than  this.  I 
think  the  considerations  which  have  been  adduced  show  that 
even  a  very  great  change  in  the  habits  of  the  laboring  classes 
as  bearing  upon  the  increase  of  population — a  change  far  great- 
er than  there  seems  any  solid  ground  for  expecting — would  be 
ineffectual,  so  long  as  the  laborer  remains  a  mere  receiver  of 
wages,  to  accomplish  any  great  improvement  in  his  state — any 
iniprovement  at  all  commensurate  with  what  has  taken  place, 
and  may  be  expected  hereafter  to  take  place,  in  the  lot  of  those 
who  derive  their  livelihood  from  the  profits  of  capital.  This 
is  a  point  which  perhaps  needs  some  clearing  up.  It  might 
seem  to  result  from  one  doctrine  on  which  I  have  laid  some 
stress  in  this  work  —  the  tendency  of  profits  to  a  minimum, 
while  no  such  tendency  can  happily  be  asserted  of  wages  — 
that  the  prospects  of  the  laborer  in  the  future  of  industry,  in 
comparison  with  his  present  condition,  were  actually  brighter 
than  those  of  the  receiver  of  profit.  But  any  such  inference 
from  the  doctrine  in  question  would  imply  a  very  gross  mis- 
apprehension of  the  facts  of  the  case.  It  is  perhaps  as  well 
to  point  out  that  the  expressions  "rate  of  wages"  and  "rate 
of  profit "  do  not  denote  analogous  facts  with  reference  to  the 
recipients  of  those  two  kinds  of  income.  The  rate  of  real 
wages  expresses,  so  far  as  the  laborer  derives  his  income  from 
wages,  his  actual  material  condition  ;  but  the  "  rate  of  profit " 
gives  no  clue  to  the  position,  in  this  respect,  of  the  capitalist. 


282  PRACTICAL  DEDUCTIONS. 

A  very  low  rate  of  profit  is  compatible,  and  in  fact  generally 
co-exists,  with  very  great  wealth  among  those  who  derive  their 
income  from  this  source.  The  explanation  lies  of  course  in 
the  flict  that  the  income  of  this  class  is  measured,  not  by  the 
rate  of  profit,  but  by  this  multiplied  by  the  amount  of  their 
capital,  and  that  this  last  factor  may  increase  to  any  extent 
whatever.  ISTothing,  therefore,  can  be  inferred  from  the  tend- 
ency of  profits  to  a  minimum  as  to  any  limitation  on  the 
growth  in  wealth  of  those  who  live  upon  profits;  while,  on 
the  other  hand,  the  limitations  on  the  advance  of  wages  imply 
limitations  on  the  laborer's  well-being. 

The  possibilities  of  the  laborer's  position,  accordingly  —  so 
long  as  he  remains  a  mere  laborer  —  must  be  considered  as 
bounded  by  the  possibilities  of  an  advance  in  real  wages.  We 
have  already  seen  the  conditions  on  which  this  depends.  Prof- 
its being  at  the  minimum,  real  wages  will  advance  with  the 
productiveness  of  industry  in  producing  such  real  wages— in 
producing,  that  is  to  say,  the  commodities  of  the  laborer's  con- 
sumption. As  T  have  already  remarked,  these  commodities 
are  mostly  commodities  of  raw  produce,  of  which  an  augment- 
ed production  alwa3\s  implies  a  resort  to  inferior  sources  of 
s'^PPb^-  Unless,  therefore,  the  laborer  would  lose  in  the  re- 
sort to  such  sources  of  supply  what  he  has  gained  from  the 
increased  productiveness  of  industrj-,  he  must  be  content  to 
impose  a  steady  restraint  on  the  increase  of  his  numbers.  And 
now  I  will  make  an  extreme  supposition  on  this  subject:  let 
us  suppose  the  providence  and  self-denial  of  the  masses  of  the 
people  to  be  strengthened  to  such  a  point  that  the  demand  for 
food  and  other  articles  of  their  consumption  can  be  satisfied 
without  requiring  a  resort  to  any  natural  agents  inferior  in 
point  of  productiveness  to  those  employed  in  the  United 
States,  what  would  be  the  effect  on  real  wages  of  such  an 
extreme  control  placed  upon  the  natural  tendency  of  popula- 
tion to  increase?     Its  effect  would  be  to  j)lace  laborers  in  this 


DISCOURAGING  PROSPECTS.  283 

country  on  an  equal  footing  with  laborers  in  the  United  States; 
and  this  is  the  very  utmost  that,  on  the  most  extreme  supposi- 
tion with  regard  to  the  control  of  population,  could  be  expect- 
ed for  the  laboring  classes,  assuming  them  to  continue  mere 
laborers.  The  supposition,  I  need  scarcely  say,  is  absolutely 
Utopian.  Nothing  is  more  certain  than  that,  taking  the  whole 
field  of  labor,  real  wages  in  Grreat  Britain  will  never  rise  to  the 
standard  of  remuneration  now  prevailing  in  new  countries — a 
standard  which  after  all  would  form  but  a  sorry  consummation 
as  the  final  goal  of  improvement  for  the  masses  of  mankind. 
We  see,  then,  within  what  very  narrow  limits  the  possibilities 
of  the  laborer's  lot  are  confined,  so  long  as  he  depends  for  his 
well-being  on  the  produce  of  his  day's  work.  Against  these 
barriers  Trades-Unions  must  dash  themselves  in  vain.  They 
are  not  to  be  broken  through  or  eluded  by  any  combinations, 
however  universal;  for  they  are  the  barriers  set  by  Nature 
herself  I  commend  the  consideration  to  those  patrons  of  the 
laboring  classes  who  encourage  an  exclusive  reliance  on  Trades- 
Unionism,  and  would  advance  their  interests  by  confining  them 
to  their  present  role.  It  was  the  opinion  of  M.  Comte,  as  it  is 
that  of  his  disciples,  that  the  true  ideal  of  industrial  societ}' — 
the  goal  toward  which  all  reforming  effort  should  be  directed 
— is  a  more  and  more  complete  and  definitive  separation  of  the 
laboring  and  the  capitalist  classes.  The  proper  model  for  our 
industrial  organization  according  to  them  is  an  army  in  which 
the  capitalists  are  as  the  captains,  and  the  laborers  as  the  rank 
and  file.  I  do  not  know  whether  the  apostles  of  this  creed 
have  ever  seriously  thought  out  the  consequences  as  regards 
the  distribution  of  wealth  of  a  regime  of  this  kind ;  but  it 
would  be  worth  their  while  to  master  at  least  so  much  Polit- 
ical Economy,  before  committing  themselves  to  the  discour- 
agement of  movements  which,  so  far  as  appears,  offer  to  the 
laboring  class  the  sole  means  of  escape  from  a  harsh  and  hope- 
less dcstinv. 


'^84  FllAVTICAL  DEDUCTIOXS. 

§  7.  The  conclusion  to  which  I  have  been  led  by  the  line 
of  argument  developed  above  is  precisely  the  opposite  of  that 
which  the  Positivists  maintain.  It  appears  to  me  that  the  con- 
dition of  any  substantial  improvement  of  a  permanent  kind  in 
the  laborer's  lot  is  that  the  separation  of  industrial  classes  into 
laborers  and  capitalists  which  now  prevails  shall  not  be  main- 
tained ;  that  the  laborer  shall  cease  to  be  a  mere  laborer — in 
a  word,  that  profits  shall  be  brought  to  re-enforce  the  Wages- 
fund.  I  have  shown  that,  in  order  to  any  improvement  at  all 
of  a  permanent  kind,  a  restraint  must  be  enforced  on  popula- 
tion which  shall  prevent  the  increased  demands  for  subsistence 
from  neutralizing  the  gains  arising  from  industrial  progress ; 
and  that  even  a  very  great  change  in  this  respect  in  the  habits 
of  the  people — a  change  far  greater  than  there  are  any  good 
reasons  for  anticipating — would  still  leave  them,  while  they 
remain  mere  laborers,  in  a  position  not  very  materially  better 
than  at  present.  But  the  significance  of  these  considerations 
becomes  much  enhanced  when  they  are  connected  with  anoth- 
er doctrine  established  in  a  former  chapter  of  this  work.  It 
was  there  shown  that,  in  the  order  of  economic  development, 
the  Wages-fund  of  a  country  grows  more  slowly  than  its  gen- 
eral capital.*  Now  the  Wages -fund  of  a  country  represents 
the  means  of  the  laboring  classes  as  a  whole  ;  the  general  capi- 
tal the  means  of  those  who  live  upon  profit — we  may  say 
broadly  of  the  richer  classes.  It  appears,  therefore,  that  the 
fund  available  for  those  who  live  by  labor  tends,  in  the  prog- 
ress of  society,  while  growing  actually  larger,  to  become  a  con- 
stantly smaller  fraction  of  the  entire  national  wealth.  If,  then, 
the  means  of  any  one  class  of  society  are  to  be  permanently 
limited  to  this  fund,  it  is  evident,  assuming  that  the  progress 
of  its  numbers  keeps  pace  with  that  of  other  classes,  that  its 
material  condition  in  relation  to   theirs  can   not  but  decline. 

*  See  ante,  pp.  170,  177. 


SOCIALISTIC  SCHEMES.  285 

Now,  as  it  would  be  futile  to  expect  on  the  part  of  the  poorest 
and  most  ignorant  of  the  population  self-denial  and  prudence 
greater  than  that  actually  practiced  by  the  classes  above  them, 
the  circumstances  of  whose  life  are  so  much  more  favorable 
than  theirs  for  the  cultivation  of  these  virtues,  the  conclusion 
to  which  I  am  brought  is  this,  that,  unequal  as  is  the  distribu- 
tion of  wealth  already  in  this  country,  the  tendency  of  indus- 
trial progress — on  the  supposition  that  the  present  separation 
between  industrial  classes  is  maintained — is  toward  an  inequal- 
ity greater  still.  The  rich  will  be  growing  richer;  and  the 
poor,  at  least  relatively,  poorer.  It  seems  to  me,  apart  alto- 
gether from  the  question  of  the  laborer's  interest,  that  these 
are  not  conditions  which  furnish  a  solid  basis  for  a  progressive 
social  state ;  but,  having  regard  to  that  interest,  I  think  the 
considerations  adduced  show  that  the  first  and  indispensable 
step  toward  any  serious  amendment  of  the  laborer's  lot  is  that 
he  should  be,  in  one  way  or  other,  lifted  out  of  the  groove  in 
which  he  at  present  works,  and  placed  in  a  position  compatible 
with  his  becoming  a  sharer  in  equal  proportion  with  others  in 
the  general  advantages  arising  from  industrial  progress. 

In  the  conclusion  just  expressed  I  believe  I  shall  have  the 
concurrence  of  many  who  would  probably  attach  little  value 
to  the  reasoning  by  which  I  have  been  led  to  it.  In  all  so- 
cialistic schemes  for  the  elevation  of  the  working-man,  the 
necessity  of  raising  him  from  the  position  of  a  mere  laborer  is 
generally  taken  for  granted.  I  am,  therefore,  on  this  point  at 
one  with  the  Socialists ;  but  while  I  agree  with  them  so  far,  I 
am  wholly  unable  to  accept  the  means  which  Socialism  pro- 
poses for  effecting  the  required  elevation.  The  leading  idea 
in  most  schemes  of  socialistic  reform  is  the  notion  of  raising- 
laborers  from  dependence  on  the  labor  market  by  throwing  on 
society,  in  the  person  of  the  State,  the  duty  of  providing  them 
with  capital.  Now  by  whatever  means  it  is  sought  to  give 
effect  to  this  idea — whether  through  the  mechanism  of  a  State 


286  PRACTICAL  DEDVCTIOXS. 

bank  issuing  loans  in  inconvertible  legal-tender  notes,  or  by 
special  taxation  directed  against  the  rich,  or  by  advances  made 
to  laborers  without  adequate  security  or  on  terms  more  favor- 
able than  can  be  obtained  in  the  market*  —  one  and  all,  they 
are  open  to  the  objection  of  doing  violence  to  the  principle 
of  property,  the  weight  and  scope  of  which  objection  I  have 
already  sufficiently  insisted  on.  But  this  is  not  all.  Such 
schemes  tend  in  the  most  direct  way  to  the  demoralization  of 
the  laborer  himself,  by  relieving  him  from  the  obligation  of 
sacrifices  which,  in  the  order  of  nature,  all  must  undergo  as 
the  condition  of  the  rewards  which  attend  on  industry,  and  so 
placing  him  in  a  position  of  privilege  in  relation  to  his  fellow- 
men.  If  laborers  can  obtain  command  of  capital  by  simply 
asking  for  it;  or  if,  having  failed  in  their  undertakings,  they 
are  to  be  relieved  from  the  consequences  of  failure,  and  to  be 
started  anew  in  fresh  enterprises,  it  is  idle  to  expect  that  they 
will  exhibit  the  self-denial  and  providence  through  the  exer- 
cise of  which  capital  comes  to  exist  and  industrial  enterprise 

*  It  may  be  said  that  this  principle  has  already  been  set  aside  in  fjivor  of  other 
classes  than  laborers.  This  is  true ;  and  I  am  not  concerned  to  defend  such  vio- 
lations of  the  rule  of  justice  and  of  sound  policy.  One  recent  example,  however, 
of  the  practice  of  making  advances  for  industrial  purposes  on  terms  more  fiivor- 
able  than  can  be  obtained  in  the  market — I  refer  to  what  are  known  as  "the 
Bright  clauses"  in  the  Irish  Land  Act  of  1870 — may,  I  think,  be  justified  on  spe- 
cial grounds.  I  need  not  enter  into  the  general  argument  here;  but  it  is  scarcely 
likely  that  any  set  of  workmen,  unable  from  their  own  resources  to  start  a  co-op- 
erative enterprise,  would  be  capable  of  furnishing  the  State  -with  the  same  security 
for  the  money  advanced,  or  with  the  same  evidence  of  their  industrial  capacity, 
which  must  be  furnished  by  every  Irisli  tenant  who  is  in  a  position  to  take  ad- 
vantage of  the  "Bright  clauses."  How  little  any  such  deviation  from  sound 
I)rinciple  is  called  for  in  the  present  case  is  strikingly  shown  in  the  past  history  of 
co-operation.  "It  can  not,"  says  Professor  Fawcett,  "be  too  carefully  borne  in 
mind  that  those  who  have  achieved  the  most  striking  success  in  co-operation  have 
not  been  assisted  by  any  extraneous  aid.  They  have  placed  their  chief  reliance 
in  union  of  effort,  in  prudence,  and  in  self-denial  "  ("  Manual  of  Political  Econo- 
my,"?. 279). 


THE  PRACTICAL  PROBLEM.  287 

to  succeed.  The  practice  of  those  virtues  would  still,  indeed, 
be  the  condition  of  attaining  the  industrial  results;  but  the 
virtues,  if  practiced  at  all  when  the  motives  for  practicing 
them  had  been  taken  away,  would  be  practiced  by  one  set  of 
people,  and  the  results  reaped  by  another.  Unsatisfactory  as 
may  be  the  actual  state  of  things,  I  can  not  believe  that  this 
would  be  an  improvement  on  it.  As  matters  now  stand,  the 
progress  of  the  laborer  is  at  least  connected  with  the  exercise 
of  industrial  virtues;  he  only  reaps  where  he  has  sown;  but 
under  a  system  in  which  he  would  find  himself  supplied  at 
will  with  capital,  the  fruits  of  others'  savings,  what  would 
there  be  to  develop  prudence  or  self-restraint?  What  motive 
for  setting  bounds  to  the  most  reckless  self-indulgence. 

§  8.  The  problem,  therefore,  for  those  who  accept  the  point 
of  view  here  taken,  is  to  combine  the  socialistic  aim  with 
means  for  giving  it  efEect  consistent  with  the  maintenance  of 
the  fundamental  bases  of  our  present  social  state — to  help  the 
laborer  to  emerge  from  his  actual  position  without  doing  vio- 
lence to  the  principle  of  property,  and  without  weakening  in 
him  those  qualities  of  character  on  which  industrial  success 
depends.  Keeping  this  object  in  view,  I  think  it  should  at  the 
outset  be  clearly  laid  down  that  there  is  no  royal  road  to  the 
possession  of  capital.  Capital  can  only  be  created  by  saving, 
and,  where  people  have  not  saved  themselves,  can  only  be  hon- 
estly obtained  by  offering  to  those  who  have  saved  an  ade- 
quate inducement  in  the  form  of  security  and  interest  to  pre- 
vail on  them  to  part  with  it.  If,  then,  the  laborer  is  to  emerge 
from  his  present  position  and  become  a  sharer  in  the  gains  of 
capital,  he  must  in  the  first  instance  learn  to  save.  To  make 
saving  practicable,  it  is  true,  there  must  be  a  margin  of  income 
beyond  what  is  required  for  providing  the  necessaries  and  de- 
cencies of  life;  and  I  shall  perhaps  be  told  that  this  margin 
the  laborer  does  not  possess.     But  this  is  an  assertion  which 


288  PRACTICAL  DEDUCTIONS. 

can  not  for  a  moment  be  maintained  in  presence  of  the  evi- 
dence furnished  bj  our  Excise  returns.  From  these  returns 
it  has  been  calculated  that  a  sum  of  no  less  than  £120,000,000 
sterling  is  now  spent  annually  on  alcoholic  drinks.  In  what 
proportion  the  working-classes  take  part  in  this  expenditure 
we  have  no  means  of  accurately  determining;  but  I  imagine 
it  will  not  be  disputed  that  by  much  the  largest  proportion 
must  be  set  down  to  their  account;  and  I  am  certainly  within 
the  mark  in  assuming  that  of  the  money  so  spent  the  greater 
portion — I  am  sure  I  might  say  three-fourths  of  the  whole — 
so  far  from  conducing  in  any  way  to  the  well-being  of  those 
who  spend  it,  is  both  physically  and  morally  injurious  to  them. 
Here,  then,  is  a  sum  of,  let  us  say,  some  £60,000,000  sterling 
which  might  annually  be  saved  without  trenching  upon  awy 
expenditure  which'  really  contributes  to  the  laborer's  well-be- 
ing. The  obstacles  to  this  saving  are  not  physical,  but  moral 
obstacles ;  and  supposing  laborers  had  the  virtue  to  overcome 
them,  the  first  step  toward  what  might  be  fairly  called  their 
industrial  emancipation  would  already  have  been  accomplish- 
ed. This  indeed  would  be  only  the  first  step,  and  formidable 
difficulties  would  still  remain.  For,  the  capital  being  saved, 
it  would  need  to  be  invested,  and  invested  in  undertakings 
which  would  yield  at  least  the  existing  rate  of  profit,  since  we 
can  not  suppose  that  less  than  this  would  be  regarded  as  suf- 
ficient compensation  for  sacrifices,  in  the  case  of  the  laboring 
classes,  considerably  greater  than  those  which  the  present  rate 
remunerates.  To  obtain,  however,  such  a  rate  of  return,  mere 
monetary  investment — advances,  I  mean,  on  loan  to  persons 
giving  adequate  security — manifestly  would  not  suffice.  The 
rate  of  interest  on  such  loans  at  present  rarely  rises  much  be- 
yond four  or  five  per  cent.  "With  some  £60,000,000  annually 
thrown  upon  the  market  as  an  addition  to  our  present  loan 
capital,  it  is  probable  the  rate  would  fall  to  one  or  two  per 
cent.  —  a  return  ridiculously  inadequate  as  compensation  for 


CO-OPEBATION  THE  SOLE  ESCAPE.  289 

the  sacrifices  which  saving  would  impose  on  the  working-man. 
It  would,  therefore,  be  necessary  that  the  new  capital  should 
be  invested  directly  in  industrial  operations;  and  here  a  new 
difficulty  presents  itself.  The  savings  of  working-men  would 
necessarily  in  the  individual  case  be  small :  the  capital  arising 
from  such  savings,  therefore,  however  large  in  the  aggregate, 
would  be  held  in  small  portions  by  a  very  numerous  class. 
But  we  know  that,  for  the  great  majority  of  industrial  under- 
takings, a  large  scale  of  production  is  the  condition  of  efficiency. 
How,  then,  is  this  condition  of  efficient  industry  to  be  reconciled 
with  the  existence  of  a  capital  diffused  throughout  the  commu- 
nity in  minute  independent  portions?  Obviousl}'  there  is  but 
one  way  possible:  those  minute  independent  portions  must  be 
made  to  coalesce  into  masses  large  enough  to  furnish  the  means 
of  efficient  action.  In  other  words,  our  reasoning  brings  us  to 
this  conclusion,  that  what  is  known  as  "co-operation"  —  the 
contribution  by  many  workmen  of  their  savings  toward  a  com- 
mon fund  which  they  employ  as  capital  and  co-operate  in  turn- 
ing to  profit  —  constitutes  the  one  and  only  solution  of  our 
present  problem — the  sole  path  by  which  the  laboring  classes 
as  a  whole,  or  even  in  any  large  number,  can  emerge  from 
their  condition  of  mere  hand-to-mouth  living,  to  share  in  the 
ojains  and  honors  of  advancino;  civilization. 

§  9.  To  say  this,  however,  is  by  no  means  to  say  that  the 
laboring  classes,  as  a  whole,  are  now  prepared  to  enter  on  this 
path,  or  that  any  very  great  change  in  our  modes  of  carrying 
on  industry  can  soon  or  easily  be  effected.  I  am  far,  indeed, 
from  thinking  so.  But  here  again  I  desire  to  point  out  that 
the  obstacles  in  the  way  are  not  physical,  are  not  even  econom- 
ic, but  moral  or  intellectual ;  or,  if  economic,  only  in  so  far  as 
economic  results  depend  on  intellectual  and  moral  conditions. 
What  workmen  have  to  overcome  in  order  to-  engage  effect- 
ively in  co-operative  industry  is,  first,  the  temptation  to  spend 

19 


290  PRACTICAL  DEDUCTIONS. 

their  means  on  indulgences  generally  pernicious,  and  which 
at  all  events  may  without  detriment  be  dispensed  with ;  and, 
secondly,  the  obstacles  incident  to  their  own  ignorance  and 
generally  low  moral  condition.  In  using  this  language  I  have 
no  desire  to  underrate  the  remarkable  progress  which  a  con- 
siderable section  of  our  artisan  population  have  already  made 
toward  fitting  them  for  taking  part  in  a  system  of  co-operation ; 
and  in  connection  with  this  subject  I  may  refer  to  the  very 
satisfactory  evidence  adduced  by  Professor  Fawcett,  in  the  last 
edition  of  his  "Manual  of  Political  Economy,"  of  the  recent 
progress  of  the  co-operative  movement — evidence  which  fully 
justifies  the  opinion  he  expresses,  that  "any  one  who  considers 
what  it  has  already  effected,  and  what  it  is  capable  of  doing  in 
the  future,  must,  we  think,  come  to  the  conclusion  that  we  may 
look  with  more  confidence  to  co-operation  than  to  any  other 
economic  agency  to  improve  the  industrial  condition  of  the 
country."*  There  can  be  no  question,  therefore,  that  even  at 
the  present  moment  there  is  a  considerable  section  of  the  work- 
ing population  already  ripe  for  co-operation;  though  I  fear  it 
must  be  acknowledged  that  among  the  best  of  them  there  is 
much  still  to  be  learned,  more  particularly  as  regards  the  qual- 
ities of  mutual  trust,  forbearance,  and  submission  to  the  guid- 
ance of  those  to  whom  they  may  assign  the  management  of 
their  joint  concerns.  With  regard  to  the  masses,  however,  it 
is  but  too  obvious  that  every  thing  has  yet  to  be  done.  In  the 
first  place,  habits  of  saving  have  to  be  created,  and,  in  the  next, 
the  intelligence,  and  still  more  the  moral  qualifications,  required 
for  effective  co-operative  action  have  to  be  developed.  The 
difficulties,  I  admit,  are  great,  but  I  can  not  see  that  they  are 
insuperable;  and  this,  as  Professor  Fawcett  has  shown,  is  as- 
suredly not  a  time  for  the  friends  of  co-operation  to  despair; 
for  though   it  be  true  that  such  success  as  co-operation  has 

*  "Manual  of  Political  Economy,"  fouithi  edition,  p.  27t). 


PROSPECTS  OF  CO-OPEBATION.  291 

achieved  in  this  country  has  been  ahnost  exclusively  confined 
to  the  comparatively  simple  problems  of  distributive  industry, 
the  experience  and  training  acquired  in  these  tasks  will  help 
to  qualify  for  more  serious  undertakings.  Nor  is  it  irrelevant 
to  remark  that  we  have  just  established,  or  at  least,  it  is  to  be 
hoped,  are  on  the  eve  of  establishing,  a  system  of  universal 
compulsory  education,  from  which  it  is  surely  not  extravagant 
to  expect  that  substantial  improvement  in  the  laborer's  charac- 
ter will  in  due  time  accrue. 

The  all-important  point,  as  it  seems  to  me,  is  to  recognize 
the  direction  in  which  the  emancipation  of  labor  from  what  is 
called  (absurdly  enough)  the  tyranny  of  capital  lies.  This  I 
repeat  is,  and,  so  far  as  I  see,  can  only  be,  that  of  co-operative 
industry.  It  is  of  course  open  to  any  one  to  question  the 
feasibility  of  the  plan ;  to  such  doubts  the  only  effective  an- 
swer, and  it  has  already  to  some  extent  been  given,  will  be 
actual  performance;  but  what  I  think  the  foregoing  argument 
establishes  is  that  the  alternative  lies  between  this  plan  and 
none.  If  workmen  do  not  rise  from  dependence  upon  capital 
by  the  path  of  co-operation,  then  they  must  remain  in  depend- 
ence upon  capital ;  the  margin  for  the  possible  improvement 
of  their  lot  is  confined  within  narrow  barriers  which  can  not 
be  passed,  and  the  problem  of  their  elevation  is  hopeless.  As 
a  body,  they  will  not  rise  at  all.  A  few,  more  energetic  or 
more  fortunate  than  the  rest,  will  from  time  to  time  escape, 
as  they  do  now,  from  the  ranks  of  their  fellows  to  the  higher 
walks  of  industrial  life,  but  the  great  majority  will  remain  sub- 
stantially where  they  are.  The  remuneration  of  labor,  as  such, 
skilled  or  unskilled,  can  never  rise  much  above  its  present 
level. 

§  10.  Before  quitting  the  subject  of  co-operation  there  is  an 
aspect  of  the  case  on  which  I  would  offer  a  few  concluding  re- 
marks.    It  may  be  asked,  supposing  a  regime  of  co-operative 


292  PRACTICAL  DEDUCTIONS. 

industry  established,  does  it  follow  that  the  future  of  the  work- 
ing-man is  assured  ?  Such  a  regime  would  indeed  bring  profits 
to  the  aid  of  wages,  and  thus  largely  increase  the  fund  availa- 
ble for  his  support;  but  that  fund,  after  all,  would  have  limits; 
the  means  of  subsistence  could  not  be  increased  as  fast  as  hu- 
man beings' could  multiply;  and  at  bottom  the  great  Malthu- 
sian  difficulty  would  remain.  Could  workmen  in  their  altered 
position  be  trusted  to  keep  their  numbers  within  the  limits 
which  the  conditions  of  prosperous  existence  inevitably  and 
under  all  circumstances  prescribe  ? 

Let  me  say  that  I  am  far  from  disposed  to  underrate  the 
gravity  of  the  consideration  here  adduced ;  but,  while  fully 
conceding  the  danger,  it  seems  to  me  that  we  may  yet  find 
grounds  for  hopefulness  in  two  circumstances:  first,  the  fund 
for  the  laborers'  support  would,  under  a  regime  of  co-operation, 
be  derived,  not  as  at  present,  exclusively  from  the  Wages-capi- 
tal of  a  country,  but  from  the  general  capital  in  all  its  forms. 
Now  we  have  seen  that,  in  progressive  communities,  the  gen- 
eral capital  grows  more  rapidly  than  the  Wages-capital ;  from 
which  it  follows  that,  iinder  a  regime  of  co-operation,  the  fund 
from  which  the  laborer  derives  his  support  would  not  only  be 
greatly  larger  than  the  corresponding  fund  under  our  present 
system,  but  would  be  a  more  rapidly  increasing  fund.  Al- 
though, therefore,  the  necessity  for  restraining  population  would 
continue  under  co-operation  as  under  all  systems  of  industry, 
the  restraint  would  not  need  to  be  as  severe  as  it  is  when  the 
laborer's  resources  are  restricted  to  the  most  slowly  growing 
portion  of  the  whole  national  capital.  The  Malthusian  diffi- 
culty, therefore,  would  not  be  removed  by  co-operation,  but 
it  would  become,  under  that  system,  greatly  less  formidable. 
But,  secondly,  as  we  have  seen,  successful  co-operation  requires, 
and  therefore  presupposes,  qualities  of  character  which  are  not 
to  be  found  at  present  in  the  masses  of  the  laboring  people — 
a  capacity  of  self-denial,  a  tendency  to  look  forward,  and  to 


AN  OBJECTION  ANSWERED.  293 

attach  i-ncreased  importance  to  tbe  future  as  compared  with  the 
present  — in  a  word,  self-control  and  prudence.  Now  these 
qualities  once  developed  in  a  human  being  do  not  operate  ex- 
clusively in  any  one  direction  :  they  affect  his  whole  character, 
and  will  manifest  their  influence  on  his  conduct  in  his  matri- 
monial and  domestic  relations,  as  well  as  in  every  other  part 
of  his  life.  For  this  reason  I  am  inclined  to  attach  much  more 
importance,  as  a  means  of  controlling  population,  to  the  crea- 
tion of  modes  of  existence  or  habits  of  life  in  which  the  pru- 
dential faculties  are  called  into  energetic  play,  than  to  any 
amount  of  direct  Malthusian  teaching.  No  doubt  the  plain 
truth  on  this  subject  should  always  be  spoken ;  but,  unless  ac- 
companied with  changes  in  the  workman's  condition  which 
should  at  once  make  his  obligations  clearer  to  himself  and  also 
fortify  him  for  their  performance,  I  must  own  I  should  have 
little  faith  in  its  practical  efficacy.  As  matters  stand  now — 
with  the  mass  of  the  laboring  population  in  absolute  depend- 
ence on  the  labor  market — is  it  any  wonder  that  Malthusian 
prophets  are  as  a  voice  crying  in  the  wilderness?  What  do 
the  majority  of  laborers  know  of  the  conditions  determining 
the  labor  market?  The  demand  for  labor  seems  to  come  and 
go,  like  the  wind  blowing  where  it  listeth,  but  those  whose  for- 
tunes are  governed  by  its  changes  know  as  little  as  they  do  of 
the  wind,  whence  it  cometh  or  whither  it  goeth.  Why,  they 
naturally  ask  in  this  state  of  ignorance,  should  they  deny  them- 
selves for  the  sake  of  their  children  ?  Is  it  not  all  an  affair  of 
chance?  and  will  not  their  children's  chances  be  as  good  as 
theirs?  Why,  then,  forego  such  enjoyment  as  the  present  of- 
fers for  the  sake  of  a  future  which  is  wrapped  in  clouds? 

'•  The  present  moment  is  their  own  : 
Tlie  next  they  never  saw." 

On  the  other  hand,  co-operation,  while  it  appeals  in  the  strong- 
est way  to  those  attributes  of  character  which  are  concerned  in 


294  PRACTICAL  DEDUCTIOXS. 

the  control  of  population,  makes  comparatively  definite  and 
clear  the  limits  of  the  laborer's  resources.  He  is  now  a  payer 
as  well  as  a  receiver  of  wages,  and,  seeing  the  wages  problem 
from  both  sides,  is  likely  to  acquire  juster  views;  but,  even 
though  wages  should  still  remain  a  mystery,  at  least  it  will  be 
tolerably  clear  that  profits  will  grow  with  the  growth  of  capi- 
tal, and  that  each  man  may  count  on  receiving  them  precisely 
in  proportion  to  the  amount  of  capital  he  can  command.  Sup- 
posing a  workman  to  have  achieved  comfortable  independence, 
it  will  be  clear  to  him  that  to  maintain  it  he  must  maintain 
his  capital  unimpaired ;  and  that  to  incur  responsibilities  which 
should  compel  him  to  encroach  upon  his  capital  to  meet  cur- 
rent expenses  would  be  tantamount  to  a  deliberate  descent  in 
the  scale  of  well-being.  The  position  of  the  co-operator  would 
in  this  respect  be  analogous  to  that  of  the  peasant  proprietor, 
who,  like  him,  draws  his  subsistence  from  a  tolerably  definite 
fund,  and  generally  contrives  to  keep  the  expenses  of  his 
household  within  the  limits  which  that  fund  will  support.  In 
these  circumstances,  it  seems  to  me,  there  is  good  ground  for 
hopefulness.  Co-operation  at  once  renders  less  formidable  the 
obstacles  to  human  improvement  inevitably  incident  to  our 
animal  propensities,  and  tends  to  develop,  in  those  who  take 
part  in  it,  a  type  of  character  fitted  in  a  high  degree  for  en- 
countering them  with  success. 


FA.RT    III. 

INTERNATIONAL    TRADE. 


F»^RT    III. 

INTERNATIONAL    TRADE, 


CHAPTER  I. 

DOCTRINE  OF  COMPAKATIVE  COST. 

§  1.  It  has  been  usual  hitherto  in  treatises  on  Political 
Economy  to  consider  the  subject  of  international  trade  and 
international  value,  apart  from  the  general  theory  of  exchange 
and  exchange  value,  as  a  distinct  branch  of  economic  doctrine; 
but  the  question  has  been  lately  raised  whether  this  method 
of  exposition  is  scientifically  warrantable — whether,  that  is  to 
say,  it  does  not  suggest  a  false  view  of  the  phenomena  of  com- 
merce by  implying  a  distinction  in  principle  where  in  reality 
no  such  distinction  exists.  Assuming  that  the  objection  thus 
taken  to  the  separate  treatment  of  international  trade  is  not  a 
mere  quibble  on  the  use  of  the  term  "international,"  but  in- 
tended to  apply  to  the  substance  of  economic  theory  as  com- 
monly expounded,  the  question  raised  by  it  is  one  as  to  the 
nature  of  the  phenomena  embraced  by  international  trade,  and 
what  we  have  to  decide  is  whether  those  phenomena  are  such 
as  to  find  their  solution  in  the  same  theory  of  exchange  whicli 
furnishes  the  explanation  of  the  facts  of  domestic  commerce. 
In  the  event  of  their  finding  their  solution  in  that  theory,  it  is 
evident  that  the  objection  taken  to  the  ordinary  mode  of  expo- 
sition is  well  founded ;  while,  in  the  opposite  case,  it  is  equally 
clear  that  the  phenomena  of  international  trade  have  need  of  a 
special  theory  for  their  satisfactory  elucidation. 


298  DOCTRINE  OF  COMPARATIVE   COST. 

In  order  to  determine  this  point,  it  will  be  well  if  we  en- 
deavor here  to  set  before  our  minds  in  the  most  general  way 
the  fundamental  circumstances  on  which  trade,  or  the  inter- 
change of  commodities,  in  all  its  forms,  rests.  These  funda- 
mental circumstances  are  to  be  found  in  the  consequences  aris- 
ing from  division  of  labor  or  separation  of  employments.  In 
order  that  industry  may  be  carried  on  upon  this  plan,  and  that 
advantage  may  be  taken  of  the  increased  efficiency  and  econo- 
my thence  resulting,  the  exchange  of  products  among  those 
carrying  on  the  separated  occupations  becomes  necessary,  and 
in  this  fact  we  find  the  natural  basis  and  explanation  of  trade. 
Trade,  therefore,  is  the  necessary  means  of  giving  effect  to  the 
separation  of  employments,  and  the  advantages  arising  from  it 
are  the  advantages  incident  to  this  scheme  of  things.  The 
general  nature  of  these  advantages  is  familiar  to  all  readers  of 
economic  works ;  but  for  our  present  purpose  it  will  be  conven- 
ient to  consider  them  under  two  leading  heads :  first,  we  ma}^ 
consider  those  advantages  which  arise  from  the  separation  of 
employments,  apart  from  any  special  circumstances  which  may 
give  to  this  arrangement  a  peculiar  importance ;  and,  secondly, 
those  which  are  due  to  the  separation  of  employments,  as  fur- 
nishing the  means  of  developing  special  faculties  of  production 
possessed  by  particular  persons  or  places.  As  an  example  of 
the  former  class  of  advantages  we  may  take  the  ordinary  hand- 
icraft trades.  There  is  an  obvious  advantasre  in  having  such 
employments  as  tailoring,  boot-making,  hat-making,  and  the 
various  callings  of  blacksmith,  locksmith,  mason,  joiner,  etc., 
separated  and  carried  on  as  distinct  occupations;  but,  as  most 
of  them  require  the  same,  or  nearly  the  same,  sort  of  qualifica- 
tions for  their  performance,  it  makes  little  difference  to  which 
of  the  group  any  particular  member  of  the  handicraft  class  de- 
votes himself.  A  is  a  tailor,  B  a  shoe-maker,  and  C  a  hatter; 
but  if  C  had  been  a  tailor,  A  a  shoe-maker,  and  B  a  hatter, 
the  arrangement  would  pi'obably  have  answered  equally  well. 


SPECIAL  PROVINCE.  299 

Nothing  is  here  gained  from  the  separation  of  employments 
beyond  the  increased  dexterity  incident  to  the  increased  famil- 
iarity of  each  workman  with  his  work,  together  with  the  sav- 
ing of  so  much  time  as  would  be  wasted  if  the  laborer  had  oc- 
casion frequently  to  change  his  occupation.  This,  then,  is  one 
description  of  advantage  arising  from  the  separation  of  employ- 
ments to  the  realization  of  which  trade  ministers.  But,  as  I 
have  said,  this  advantage  may  be  combined  with  advantages 
of  another  kind,  and  this  happens  where  the  separation  of  em- 
ployments, while  promoting  the  results  just  noticed,  furnishes, 
at  the  same  time,  the  means  of  developing  the  special  capacities 
or  resources  possessed  by  particular  individuals  or  localities. 

In  the  examples  given  above  the  advantage  obtained  was 
derived  from  the  mere  fact  of  the  separation  of  employments, 
altogether  independently  of  the  mode  in  which  the  separated 
employments  were  distributed  among  the  persons  carrying 
them  on,  as  well  as  of  the  places  in  which  they  were  conduct- 
ed. But  a  further  gain  arises  when  the  employments  are  of 
a  kind  which,  in  order  to  their  effective  performance,  call  for 
special  capacities  in  the  workman  or  special  natural  resources 
in  the  scene  of  operation.  There  would  be  a  manifest  waste 
of  special  power  in  compelling  to  a  mere  mechanical  or  routine 
pursuit  a  man  who  is  fitted  to  excel  in  a  professional  career; 
and  similarly,  if  a  branch  of  industry  were  established  on  some 
site  which  offered  greater  facilities  to  an  industry  of  another 
sort,  a  waste,  analogous  in  character,  would  be  incurred.  In 
a  word,  while  a  great  number  of  the  occupations  in  which  men 
engage  are  such  as,  with  proper  preparation  for  them,  might 
equally  well  be  carried  on  by  any  of  those  engaged  in  them, 
or  in  any  of  the  localities  in  which  they  are  respectively  es- 
tablished, there  are  others  which  demand  for  their  eflfective 
performance  special  personal  qualifications  and  special  local 
conditions;  and  the  general  effectiveness  of  productive  indus- 
try will,  other  things  being  equal,  be  proportioned  to  the  com- 


300  DOCTRINE   OF  COMPARATIVE   COST. 

pleteness  with  which  the  adaptation  is  accomplished  between 
occupation  on  the  one  hand  and  individuals  and  localities  on 
the  other. 

There  are  thus  two  distinct  kinds  of  advantage  derivable 
from  the  separation  of  employments;  and  I  have  called  atten- 
tion to  this  circumstance  in  order  to  say  that  it  is  one  only  of 
those  sorts  of  advantage  that  international  trade  in  the  main 
tends  to  develop.  The  great  trades  of  the  world  are  carried 
on  between  countries  pretty  widely  removed  from  each  other 
either  in  the  scale  of  civilization  or  in  respect  to  their  natural 
resources  and  productions,  while  in  proportion  as  countries  ap- 
proximate to  each  other  in  natural  resources  or  in  the  indus- 
trial qualities  of  their  inhabitants,  the  scope  for  international 
trade  is  narrowed :  it  is  even  possible  that  it  should  fail  alto- 
gether. The  reason  of  this  is  by  no  means  mysterious.  The 
advantage  to  be  derived  from  the  separation  of  employments, 
where  this  separation  is  not  connected  with  any  special  facil- 
ities of  production,  are,  in  countries  in  which  industry  has 
made  any  considerable  progress,  in  general  realized  in  their 
full  extent  by  the  separation  which  takes  place  within  the 
limits  of  each  of  those  countries.  It  is  only  when  population 
is  very  sparse  that  the  home  market  is  not  large  enough  to 
secure  this  result;  and  where  this  is  so,  it  generally  happens 
that  any  gain  that  might  be  obtained  through  a  trade  with 
foreign  nations  in  articles  in  the  production  of  which  no  spe- 
cial facilities,  positive  or  comparative,  are  possessed  by  the 
trading  countries,  is  more  than  counterbalanced  by  the  loss  in- 
cident to  an  increased  cost  of  carriage.  Accordingly  in  coun- 
tries or  districts  which  are  very  sparsely  peopled,  instead  of 
the  separation  of  employments  in  the  simpler  industries  being 
carried  out  by  an  intci'changc  with  foreign  nations,  what  usu- 
ally happens  is  that  no  separation  of  employments,  or  a  very 
imperfect  one,  takes  place,  and  that  things  continue  in  a  prim- 
itive state.      International  trade   may  thus  be  considered  as 


SPECIAL  PROVINCE.  301 

practically  restricted  to  giving  effect  to  those  examples  of  the 
separation  of  employment  in  which  the  more  ordinary  ad- 
vantages flowing  from  that  principle  are  combined  with  those 
which  are  due  to  the  adaptation  of  industrial  operations  to  the 
special  circumstances  of  persons  and  places ;  while  again  it  is 
tolerably  obvious  that,  of  these  two  sorts  of  adaptation,  that 
which  relates  to  places  is,  in  the  international  sphere,  by  much 
the  more  important.  The  only  case  indeed  in  which  personal 
aptitudes  go  for  much  in  the  commerce  of  nations  is  where  the 
nations  concerned  occupy  different  grades  in  the  scale  of  civili- 
zation. In  the  trade,  for  example,  between  England  and  In- 
dia it  is  probable  that  the  different  characters  of  the  two  peo- 
ples, incident  to  the  different  stage  of  social  growth  to  which 
each  has  attained,  go  a  considerable  way  in  determining  the 
character  and  the  amount  of  their  commercial  dealings.  But 
perhaps  the  most  striking  example  which  the  world  has  ever 
seen  of  a  foreign  trade  determined  by  the  peculiar  personal 
qualities  of  those  engaged  in  ministering  to  it  is  that  which 
was  furnished  by  the  Southern  States  of  the  American  Union 
previous  to  the  abolition  of  slavery.  The  effect  of  that  insti- 
tution was  to  give  a  very  distinct  industrial  character  to  the 
laboring  population  of  those  States,  which  unfitted  them  for 
all  but  a  very  limited  number  of  occupations,  but  gave  them 
a  certain  special  fitness  for  these.  Almost  the  entire  industrv 
of  the  country  was  consequently  turned  to  the  production  of 
two  or  three  crude  commodities,  in  raising  which  the  indus- 
try of  slaves  was  found  to  be  effective ;  and  these  were  used, 
through  an  exchange  with  foreign  countries,  as  the  means  of 
supplying  the  inhabitants  with  all  other  requisites.  This  is, 
perhaps,  the  most  noteworthy  instance  on  record  of  personal 
aptitudes  extensively  affecting  the  external  trade  of  a  countr3^ 
In  the  main,  however,  it  would  seem  that  this  cause  does  not 
go  for  very  much  in  international  commerce.  The  principal 
condition,  to  which  all  others  are  subordinate,  in  determining 


302  DOCTRINE  OF  COMPARATIVE  COST. 

the  existence  and  character  of  foreign  trade  must  be  looked 
for  in  that  other  form  of  adaptation  founded  on  the  special  ad- 
vantages, positive  or  comparative,  offered  by  particular  locali- 
ties for  the  prosecution  of  particular  industries. 

Here,  then,  we  have  a  well-defined  characteristic  which  dis- 
tinguishes international  trade  from  domestic ;  but  its  presence 
alone  would  scarcely  suffice  to  justify  a  special  theory  of  the 
former.  To  satisfy  ourselves  on  this  point,  we  must  advert  to 
another  circumstance  to  which  I  have  now  to  call  attention. 

One  of  the  principal  conditions  determining  the  relative 
profitableness  of  particular  occupations  and  the  terms  on 
which  their  products  are  exchanged  consists  in  the  degree 
of  facility  which  happens  to  exist  for  moving  capital  and  la- 
bor from  one  to  the  other.  Now  this  facility  is  very  different 
in  the  case  of  occupations  carried  on  within  the  limits  of  a  sin- 
gle country,  and  those  carried  on  in  different  countries ;  and  in 
this  difference  is  to  be  found  the  chief  fact  discriminating  the 
phenomena  of  international  from  those  of  domestic  trade.  Let 
us  endeavor  to  appreciate  in  a  general  way  the  range  and  the 
degree  of  this  difference.* 

The  assumption  commonly  made  in  treatises  of  Political 
Economy  is  that,  as  between  occupations  and  localities  within 
the  same  country,  the  freedom  of  movement  for  capital  and 
labor  is  perfect,  while,  as  between  nations,  capital  and  labor 
move  with  difficulty  or  not  at  all.  In  strictness  neither  mem- 
ber of  this  assumption  can  be  maintained.  Capital,  indeed — 
so  long  at  least  as  it  exists  in  the  form  of  purchasing  power 
available  for  productive  purposes  —  moves  freely  among  all 
occupations  and  places  within  the  same  country ;  but  labor, 
as  we  know,  encounters  impediments  at  certain  points;  the 
laborers  belonging  to  the  lower  industrial  grades  being  hin- 
dered by  the  circumstances  of  their  position  from  entering 
into  competition  with  those  above  them;  while  even  for  la- 
borers occupying  tlie  same  industrial  stratum  the  obstacles  to 


HINDEBANCES  TO  LOCOMOTION.  303 

migration  between  distant  localities  are  often  very  considera- 
ble, and  such  as  sometimes  to  amount  to  practical  prevention. 
Nor  any  more  is  it  true,  without  large  qualification,  that  labor 
and  capital  do  not  move  from  country  to  country.  Capital,  in 
a  certain  sense,  is  every  day  becoming  less  national  and  more 
cosmopolitan ;  and  though  labor  is  far  from  being  equally  mo- 
bile, still  with  the  immense  emigration  taking  place  year  after 
year  from  these  islands  and  other  countries  of  Western  Eu- 
rope, and  with  the  fact  before  us  that  even  Asiatic  popula- 
tions are  now  beginning  to  emigrate,  it  is  impossible  to  deny 
that  labor  is  capable,  under  the  influence  of  economic  causes, 
of  international  movement  on  a  great  scale.  The  assumption, 
therefore,  in  the  unqualified  form  in  which  it  is  often  laid 
down,  can  not  be  maintained  either  in  its  affirmative  or  in  its 
negative  part.  But  while  so  much  must  be  freely  admitted, 
it  may  still  be  affirmed  that  enough  of  truth  remains  in  the  as- 
sertion, after  all  due  deductions  have  been  made,  to  warrant 
the  inferences  that  have  been  drawn  from  it,  and  to  justify  the 
distinction  contended  for.  For  it  is  by  no  means  necessary  to 
the  truth  of  the  doctrine,  as  it  has  been  laid  down,  for  exam- 
ple, by  Ricardo  and  Mill,  that  there  should  be  an  absolute  im- 
possibility of  moving  capital  and  labor  from  country  to  coun- 
try. What  the  doctrine  requires  is  not  this,  but  such  a  degree 
of  difficulty  in  effecting  their  transference  as  shall  interfere  sub- 
stantially and  generally — that  is  to  say,  over  the  whole  range 
of  the  commodities  exchanged — with  the  action  of  industrial 
competition.*     The  one  and  sufficient  test,  as  I  have  pointed 

*  The  reader  will  here  bear  in  mind  the  sense  in  which  I  use  the  phrase  "  in- 
dustrial CQmpetition,"  as  expressing  the  competition  which  takes  place  between 
the  producers  of  different  commodities — competition  which  tends  to  bring  wages 
and  profits  into  correspondence  with  the  sacrifices  undergone,  in  contradistinction 
to  that  which  takes  place  between  dealers  in  the  same  commodity  and  w  liich  oper- 
ates toward  equality  of  price.  The  latter  miglit  be  called  ''commercial  competi- 
tion." 


304  DOCTRINE  OF  COMPARATIVE  COST. 

out,  of  the  existence  of  an  effective  industrial  competition,  is 
the  correspondence  of  remuneration  with  the  sacrifices  under- 
gone— a  substantial  equality,  that  is  to  say,  making  allowance 
for  the  different  circumstances  of  different  industries,  of  profits 
and  wages.  Such  a  test,  applied  to  domestic  transactions,  shows 
the  existence  of  a  very  large  amount  of  effective  industrial  com- 
petition operative  throughout  the  various  industries  carried  on 
within  the  limits  of  a  single  country.  The  competition  of  dif- 
ferent capitals  within  such  limits  may  be  said  to  be  universal- 
ly effective ;  and  that  of  labor,  though  interrupted  at  certain 
points,  is  effective  over  large  industrial  areas.  Profits  conse- 
quently within  the  same  country,  however  great  may  be  the 
fluctuations,  gravitate  steadily  toward  a  common  level,  as  like- 
wise do  wages  within  the  limits  of  the  industrial  areas  to  which 
I  have  referred.  The  same  test  applied  to  international  trans- 
actions shows  an  entirely  different  state  of  things.  For,  though 
capital  migrates,  it  does  not  do  so  upon  a  scale  large  enough 
to  establish  an  equality  of  profits  in  different  countries,  and 
profits  consequently  remain  at  a  permanently  higher  level  in 
some  countries  than  in  others.  Indeed,  in  spite  of  all  we  hear 
of  the  international  movements  of  capital,  the  amount  of  cap- 
ital that  can  be  truly  called  cosmopolitan — disposable  for  in- 
vestment in  countries  other  than  that  to  which  it  properly  be- 
longs— is  after  all  but  a  mere  fraction  of  the  national  capital. 
It  is  in  effect  confined  to  a  portion  of  what  is  called  the  '*  float- 
ing capital"  of  a  country — that  part  of  the  capitalist's  funds 
which  he  does  not  mean  to  superintend  himself,  and  which 
he  offers  on  loan.  All  that  immensely  larger  part  which  the 
owners  are  not  disposed  to  part  with,  but  desire  to  superin- 
tend and  work  themselves — all  this  is  practically  confined  to 
the  capitalist's  country.  What  passes  off,  though  often  con- 
siderable in  its  positive  amount,  is  thus  wholly  unequal  to 
producing  a  sensible  impression  on  the  general  rate  of  prof- 
it in  the  country  to  which   it  goes;   and  so  profits  remain 


HINDERANCES  TO  LOCOMOTION.  305 

permanently  at  different  levels  in  different  countries.  And 
just  as  little  has  an  equilibrium  in  the  rates  of  wages  been 
brought  about  by  the  international  movements  of  labor.  Great 
as  has  been  the  emigration  from  Europe  to  the  United  States, 
it  may  be  doubted  if,  outside  the  range  of  a  few  towns  on  the 
eastern  coast,  any  appreciable  effect  has  been  produced  on  the 
rates  of  wages  in  the  latter  countrj^  Throughout  the  Union 
"wages  remain  in  all  occupations  very  considerably  higher  than 
in  the  corresponding  occupations  in  this  country.  Nor  do  they 
show  any  sign  of  declinmg.  It  thus  appears,  alike  with  regard 
to  labor  and  capital,  that  notwithstanding  a  certain  amount  of 
international  mobility  in  these  instruments  of  production,  the 
impediments  to  their  transference  from  country  to  country  are 
yet  sufficiently  great  to  prevent  effective  competition  from  tak- 
ing place  between  the  industries  of  different  countries,  such  as 
is  really  operative  in  each  separate  country  over  a  very  large 
proportion  of  its  domestic  industry.  And  this,  and  no  more 
than  this,  is  all  that  is  assumed  by  eco.nomists — all  at  least  that 
is  essential  to  the  validity  of  their  arguments — when  they  con- 
tend for  the  necessity  of  separating  the  facts  of  international 
from  those  of  domestic  trade. 

§  2.  It  will  aid  us  in  giving  the  due  circumscription  to  the 
facts  with  which  we  have  to  deal  if,  before  developing  the  con- 
sequences involved  in  the  state  of  things  just  described,  we 
note  briefly  the  nature  of  the  obstacles  which  impede  the  move- 
ments of  labor  and  capital  in  the  international  sphere.  The 
most  important  of  these  are  the  following:  1.  Geographical  dis- 
tance; 2.  Difference  in  political  institutions;  3.  Difference  in 
language,  religion,  and  social  customs — in  a  word,  in  forms  of 
civilization.  Each  of  these  circumstances  is  capable  of  hinder- 
ing, and  does  in  fact,  to  a  greater  or  less  extent,  hinder  the  free 
movement  of  labor  and  capital.  As  regards  their  relative  im- 
portance, the  social  and  political  causes  are  probably,  in  the 

20 


306  DOCTRINE  OF  COMPARATIVE  COST. 

present  state  of  the  world,  more  powerful  than  the  physical, 
more  particularly  when  the  former  happened  to  be  connected 
with  differences  of  race ;  while  geographical  distance  is  appar- 
ently that  which  exerts  the  least  obstructive  force. 

These  being  the  principal  obstacles  to  the  movements  of  la- 
bor and  capital  from  place  to  place,  it  will  be  at  once  apparent 
that  the  line  of  demarkation  which  would  result  from  their 
interference,  though  largely  coincident  with  that  indicated  by 
the  words  "  international "  and  "  domestic,"  is  by  no  means 
strictly  so.  Australia  and  Canada,  for  example,  are  portions 
of  a  single  political  system,  but  the  geographical  obstacles  of- 
fered to  trade  between  those  places,  or  between  either  of  them 
and  England,  are  far  greater  than  those  which  exist  in  the 
trade  of  many  independent  nations ;  and  the  same  may  be  said 
of  the  trade  between  the  Atlantic  and  the  Pacific  States  of  the 
American  Union.  Similarly,  we  find  within  the  same  country 
differences  of  race,  of  language,  and  of  religion,  and  to  some 
extent  of  social  tastes  and  habits.  It  is  thus  clear  that  no  hard 
and  fast  line  can  be  drawn  between  domestic  and  international 
trade  founded  on  the  character  of  the  obstacles  presented  to 
the  movements  of  labor  and  capital ;  and  it  must,  therefore,  be 
owned  that  the  terms  "international"  and  "domestic"  do  not 
accurately  express  the  distinction  which  it  is  designed  to  mark. 
What  we  want  is  a  term  which  would  cover  all  that  portion 
of  the  trade  of  mankind  carried  on  between  localities  sufficient- 
ly separated  from  each  other,  whether  by  moral  or  physical 
obstacles,  to  prevent  the  action,  as  between  producers  in  the 
trading  localities,  of  effective  industrial  competition,  and  which 
would  exclude  the  trade  carried  on  under  those  more  favorable 
conditions  where  industrial  competition  is  effective.  So  far  as 
I  know,  there  is  no  one  word  that  accurately  meets  this  require- 
ment. "  International  "  is  that  which  perhaps  comes  most  near- 
ly to  what  we  want.  In  the  intercourse  of  independent  nations, 
all  or  most  of  the  obstacles  I  have  noted  come  into  operation, 


CONSEQUENCES  WHICH  RESULT.  307 

and  in  their  combination  offer  a  substantial  impediment  to  the 
free  movement  of  capital  and  labor;  while,  as  among  different 
localities  in  the  same  country,  they  do  not  exist  in  the  same 
number  or  in  the  same  degree  of  intensity,  and,  where  they  do 
exist  and  operate,  they  are  always  counteracted  and  largely 
neutralized  by  the  powerfully  assimilating  influence  of  a  single 
central  government.  In  the  case  of  colonies,  however,  the  po- 
litical causes  tending  to  facilitate  the  movements  of  capital 
and  labor  are,  on  the  whole,  overborne  by  the  geographical,  cli- 
matic, and  physical  circumstances  which  obstruct  those  move- 
ments; and  therefore,  for  the  purposes  of  economic  theory,  we 
must  include  colonial  under  "international"  trade.  Our  eco- 
nomic nomenclature  in  this  part  of  our  subject  is  thus  not  free 
from  objection ;  but,  having  noted  its  imperfection,  we  shall 
not  be  likely  to  be  misled  by  it. 

§  3.  We  have  now  ascertained  the  grounds  in  the  facts  of 
the  case  for  the  distinction  between  "  international "  and  "  do- 
mestic" trade,  and  the  sense  in  which  these  terms  are  to  be 
understood.  It  remains  that  we  endeavor  to  trace  the  conse- 
quences which  result  in  the  trade  of  nations  from  the  circum- 
stances, such  as  they  have  been  shown  to  be,  under  which  it 
takes  place. 

First  among  these  consequences  we  may  note  the  following: 
A  trade  may  arise  between  two  independent  countries  and 
be  profitable  for  each  under  conditions  in  which  it  would  not 
arise  if  the  trading  localities  were  within  the  range  of  a  single 
country,  that  is  to  say,  if  they  were  so  situated  that  labor  and 
capital  moved  freely  .between  them.  To  perceive  the  grounds 
of  this  statement,  we  may  consider  the  following  case.  Sup- 
pose a  trade  between  North  Wales  on  the  one  side  and  Lan- 
cashire and  Yorkshire  on  the  other,  the  articles  exchanged  be- 
ing  slates  on  the  part  of  North  Wales  against  woolen  and  cot- 
ton manufactures  on  the  side  of  the  English  counties.     North 


308  DOCTRINE  OF  COMPARATIVE  COST. 

"Wales  has  evidently  a  great  and  unquestionable  advantage 
over  Yorkshire  and  Lancashire  in  the  production  of  slates ; 
and  it  is  probable  that  Yorkshire  and  Lancashire  have  an  ad- 
vantage, less  decided,  but  still  real,  over  North  Wales  in  the 
production  of  their  staple  products.  Of  one  thing  at  all  events 
we  may  be  sure :  neither  district  is  under  a  positive  disadvan- 
tage, as  compared  with  the  other,  in  raising  or  manufacturing 
the  product  which  forms  the  staple  of  its  trade ;  for,  were  this 
so,  the  product  in  question  would  no  longer  be  produced  in 
that  locality  :  the  capital  and  labor  emploj'ed  in  the  business 
would  migrate  thence  to  the  other  locality,  which  offered 
greater  advantage  for  the  production  of  this  article,  and  the 
trade  between  the  places  would  cease.  In  a  word,  a  migration 
of  the  instruments  of  production  would  take  the  place  of  a 
trade  in  the  products.  This  is  what  would  happen  when  the 
trading  districts  are  situated  within  the  same  country,  and  la- 
bor and  capital  move  freely  between  them.  But  now  suppose 
the  trading  localities  to  be  situated  in  different  countries,  be- 
tween which  labor  and  capital  move  with  difficulty,  or  not  at 
all.  Under  such  circumstances  either  might  have  an  advan- 
tage over  the  other  in  respect  of  all  the  staples  of  their  trade — 
in  the  case  supposed  in  respect  to  textile  flibrics  as  well  as  to 
slates — and  the  trade  might  nevertheless  go  on  ;  for,  though  it 
is  true  that  here  too,  as  in  the  case  just  considered,  there  would 
be  a  gain  in  productive  efficiency  if  the  people  and  capital  of 
the  less  favored  district  were  to  transfer  themselves  bodily  to 
the  other,  yet,  as  in  point  of  fact  this  transference,  for  very 
sufficient  reasons,  does  not  take  place,  the  question  arises  what, 
under  these  circumstances,  will  be  most  for  the  interests  of  the 
two  countries  in  supplying  their  needs  by  means  of  industry? 
A  very  little  consideration  is  needed  to  show  that,  under  the 
circumstances  supposed — the  superiority  in  productive  power 
lying  in  the  case  of  every  branch  of  industry  on  the  side  of 
one  country — it  may  yet  be  for  the  interest  of  both  to  satisf}^ 


MODE  OF  ITS  ACTION.  309 

their  wants  by  engaging  in  trade,  provided  only  thai  the  advan- 
tage enjoyed  by  the  country  possessing  the  si/perior  industrial  re- 
sources be  not  equally  great  in  each  instance;  in  other  words, 
provided  that  each  country  possesses,  in  respect  to  the  other, 
a  greater  advantage  or  a  less  disadvantage  in  the  production 
of  some  than  in  that  of  other  commodities.  If,  for  example,  it 
happened  that  North  Wales  and  the  manuficturing  districts 
of  England  were  situated  in  independent  countries  between 
which  labor  and  capital  refused  to  pass,  under  these  circum- 
stances North  Wales  might  have  an  advantage  over  the  En- 
glish counties  both  in  the  production  of  slates  and  also  in  the 
production  of  textile  fabrics;  but  if  her  superiority  was  not 
the  same  in  both — if  it  were  greater  in  the  case  of  one  than  in 
that  of  the  other  class  of  commodity — greater,  say,  in  the  case 
of  slates  than  in  that  of  cloths,  it  would  still  be  for  the  inter- 
est of  the  two  districts  to  trade  in  those  articles;  for  Wales, 
by  devoting  her  industry  to  the  production  of  slates,  in  which 
her  superiority  was  greater  than  in  the  production  of  cloths, 
and  using  her  slates  as  the  means  through  trade  of  procuring 
cloths,  would  get  them  cheaper — with  less  real  cost  of  labor  and 
abstinence  —  than  if  she  produced  them;  while,  on  the  other 
hand,  Yorkshire  and  Lancashire  would  get  their  slates  cheaper 
by  employing  their  industry  in  the  production  of  fabrics  in 
which  their  disadvantage  was  less,  and  using  these  as  the  means 
of  obtaining  their  slates  from  Wales,  than  by  attempting  to  pro- 
duce slates  or  any  substitute  for  them  directly  for  themselves. 
It  thus  appears  that  a  trade  may  take  place  between  two  dis- 
tricts, as  independent  countries,  under  circumstances  in  which 
no  trade  would  occur,  were  those  districts  situated  within  the 
limits  of  a  single  country,  and  capital  and  labor  free  to  move 
between  them.  This,  I  say,  is  a  possible  case,  and,  as  will  pres- 
ently appear,  in  actual  experience,  a  ver\'-  common  one ;  indeed, 
it  may  be  said  to  be  typical  of  a  large  proportion  of  the  entire 
trade  carried  on  between  independent  countries.     We  are  thus 


310  DOCTRINE   OF  COMPJEATIVE  COST. 

brought,  in  the  domain  of  international  trade,  into  contact  with 
a  phenomenon  of  which  the  theory  of  trade  in  its  simpler  cases 
furnishes  no  explanation,  for  which  therefore  a  special  theory 
is  needed.  The  writer  who  first  detected  the  fact,  and  sup- 
plied the  theory,  was  Eicardo ;  and  the  theory  involved  in  the 
foregoing  exposition  is  in  effect  that  which  he  gave.  It  may 
be  thus  stated :  In  order  to  the  existence  of  a  trade  between 
different  countries,  the  essential  and  also  the  sufficient  condi- 
tion is,  that  there  should  be  in  those  countries  a  difference  in 
the  comparative  cost  of  producing  the  commodities  which  are 
the  subject  of  the  trade.  The  commodity  forming  the  staple 
of  a  trading  country  may  be,  and  frequently  is,  more  cheaply 
produced  in  that  country  than  in  the  country  which  imports 
it,  but  this  is  not  necessary  to  the  existence  of  the  trade ;  and 
a  trade  between  nations  may  be  carried  on  where  the  superior- 
ity in  point  of  productive  power  with  respect  to  all  articles 
which  form  the  subject  of  the  trade  is  upon  the  side  of  one  of 
them.  On  the  other  hand,  a  difference  in  the  absolute  cost  of 
producing  commodities  in  different  countries  does  not  neces- 
sarily render  a  trade  between  them  possible,  since,  if  the  dif- 
ference were  the  same  in  the  case  of  each  article,  there  would 
be  no  motive  for  an  exchange.  The  one  condition,  therefore, 
at  once  essential  to,  and  also  sufficient  for,  the  existence  of  in- 
ternational trade,  is  a  difference  in  the  comparative,  as  contra- 
distinguished from  the  absolute,  cost  of  producing  the  com- 
modities exchanged.* 

Such  is  the  theory  of  international  trade  as  it  was  left  by 
Eicardo,  and  expounded,  but  not  substantially  altered,  by 
Mill.f     It  can  not  be  doubted  that  it  sounds  the  depths  of  the 

*  Kicardo's  Works  (M'Culloch's  edition),  chap.  vii.  ;  Mill's  "  riinciples  of  Po- 
litical Economy,"  book  iii.,  chap.  xvii. 

t  I  say,  the  theory  of  international  trade  was  not  substantially  altered  by  Mill : 
the  theory  of  international  values  was ;  Mill  having  here  sup])licd  an  important 
condition  overlooked  by  Uicardo. 


EXPLANATION  OF  TEEMS.  311 

problem,  and  embraces  in  its  scope  all  the  most  important — 
certainly  all  the  most  conspicuous — facts  in  the  sphere  of  in- 
ternational dealings.  Nevertheless,  as  I  shall  presently  at- 
tempt to  show,  the  doctrine  as  it  stands  is  not  absolutely  com- 
plete, and  in  fact  fails  to  take  account  of  certain  international 
exchanges,  not  perhaps  very  extensive  in  their  range,  but  still 
of  considerable  importance.  Such  criticisms,  however,  as  I 
have  to  make  upon  this  point  will  be  more  conveniently  re- 
served for  another  chapter.  For  the  present  I  shall  confine 
myself  to  a  few  further  remarks  in  elucidation  of  the  doctrine 
as  it  has  been  stated  above. 

And,  first,  it  must  be  observed  that  by  "cost  of  production," 
as  employed  in  the  foregoing  context,  the  reader  is  to  under- 
stand the  actual  difficulties  of  production  as  measured  by  the 
sacrifices  which  production  requires,  not  the  amount  of  wages 
and  profits,  whether  measured  in  money  or  produce,  comprised 
in  the  capitalist's  outlay  and  return.  It  was  in  the  former 
sense  that  Ricardo,  who  first  discovered  the  truth  in  question, 
understood  the  words,  and,  notwithstanding  that  Mr.  Mill  has 
in  his  chapters  on  Value  adopted  the  latter  conception  of  cost 
of  production,  it  is  in  the  same  sense  that  he  has  employed  it 
in  his  exposition  of  the  doctrine  of  international  trade.*  In- 
deed, it  may  be  doubted  if  the  theory  of  comparative  cost  of 
production  as  the  ruling  principle  of  international  trade  could 
ever  have  been  worked  out  from  the  point  of  view  which  re- 
gards cost  as  consisting  in  wages  and  profits ;  and,  however 
this  may  be,  it  is  at  least  quite  certain,  as  I  shall  hereafter 
demonstrate,  that  the  theory  of  international  values,  adopted 

*  The  only  sacrifice  taken  account  of  by  either  Ricardo  or  Mill  in  working  out 
the  theory  of  international  trade  is  that  of  labor,  the  cost  being  always  reckoned 
in  so  many  days'  labor  of  so  many  men.  Abstinence  is  entirely  overlooked.  The 
omission,  however,  does  not  seriously  affect  the  reasoning,  since  labor  and  absti- 
nence being  each  alike  a  sacrifice,  the  considerations  applicable  to  the  one  are,  so 
far  as  the  argument  is  concerned,  for  the  most  part  applicable  also  to  the  other. 


312  DOCTRINE  OF  COMPARATIVE   COST. 

alike  by  Mill  and  Kicardo,  is  absolutely  irreconcilable  with 
that  view. 

Secondly,  when  it  is  said  that  international  trade  depends 
on  a  difference  in  the  comparative,  not  in  the  absolute,  cost 
of  producing  commodities,  the  costs  compared,  it  must  be  care- 
fully noted,  are  the  costs  in  each  country  of  the  commodities 
which  are  the  subjects  of  exchange,  not  the  different  costs  of 
the  same  commodity  in  the  exchanging  countries.  Thus,  if 
coal  and  wine  be  the  subjects  of  a  trade  between  England  and 
France,  the  comparative  costs  on  which  the  trade  depends  are 
the  comparative  costs  of  coal  and  wine  in  France  as  compared 
with  the  comparative  costs  of  the  same  articles  in  England. 
England  might  be  able  to  raise  coal  at  one-half  the  amount  of 
labor  and  abstinence  needed  in  France;  but  this  alone  would 
not  render  it  profitable  for  France  to  obtain  her  coal  from  En- 
gland. If  her  disadvantage  in  producing  other  commodities 
was  as  great  as  in  producing  coal,  she  would  gain  nothing  by 
an  exchange  of  products,  and  the  conditions  for  a  trade  be- 
tween the  two  countries  would  not  exist.  But  supposing  she 
was,  in  the  case  of  some  other  commodity,  under  a  less  disad- 
vantage than  in  that  of  coal,  still  more  if  she  had  with  regard 
to  that  other — as  in  wine — a  positive  advantage,  it  would  at 
once  become  her  interest  to  employ  this  commodity  as  a  means 
of  obtaining  through  trade  her  coal  from  England,  instead  of 
producing  coal  directly  from  her  own  mines. 

So  much  in  the  way  of  explanation  of  terms.  Let  me  now 
endeavor  to  set  before  the  reader  a  few  examples  of  the  prac- 
tical working  of  the  principle  of  comparative  cost  in  the  act- 
ual commerce  of  the  world.  For  this  purpose  I  shall  take,  in 
the  first  place,  a  case  to  which  I  have  both  in  this  and  in  for- 
mer publications  frequently  referred — the  external  trade  of  the 
principal  Australian  colonies  before  and  since  the  discovery 
of  the  gold-fields.  Previous  to  that  discovery,  which  occurred 
in  1851,  no  gold  being  produced  in  the  country,  the  cost  to  the 


PRACTICAL  EXAMPLES.  31:5 

colony  of  such  gold  as  circulated  there  would  consist  in  the 
cost — by  which  the  reader  will  bear  in  mind  I  mean  the  labor 
and  abstinence  —  incident  to  the  production  of  those  articles 
by  the  exchange  of  which  with  foreign  countries  Australia  ob- 
tained her  gold.  Certain  quantities  of  wool,  tallow,  and  hides 
were  exported,  and  sold  in  foreign  countries  for  certain  sums 
of  the  precious  metals,  and  these,  or  their  equivalents  in  value, 
came  back  to  the  Australian  producers,  to  whom  they  became 
wages  and  profits.  These  wages  and  profits,  therefore,  meas- 
ured in  the  precious  metals,  or,  let  us  say,  in  gold,  which  was 
the  standard  of  value  in  the  colony,  would  be  the  return  upon 
the  labor  and  abstinence  employed  in  producing  the  commod- 
ities through  the  sale  of  which  they  were  obtained.  In  pro- 
portion as  they  were  great,  the  cost  of  obtaining  gold  would 
be  small ;  in  proportion  as  they  were  small,  the  cost  of  obtain- 
ing gold  would  be  great;  in  a  word,  the  cost  of  obtaining  gold 
would  vary  inversely  with  the  money  rates  of  wages  and  prof- 
its prevailing  in  the  colony.  Supposing,  for  example,  that  4.s. 
a  day  was  the  wages  of  unskilled  labor  in  the  colony  in  1850, 
and  ten  per  cent,  per  annum  the  ordinary  return  upon  capital, 
then  the  cost  of  gold,  so  far  as  it  consisted  of  labor,  would  be 
a  day's  unskilled  labor  for  45.  worth  of  gold,  and,  so  far  as  it 
consisted  of  abstinence,  a  year's  abstinence  from  the  enjoyment 
obtainable  by  means  of  £100  for  £10.  For  simplicity  of  illus- 
tration, as  labor  is  so  much  the  principal  element  in  the  case, 
we  may  confine  our  attention  to  it  exclusively,  and  say  brief- 
ly that  the  cost  of  gold  in  Australia  previous  to  the  gold  dis- 
coveries was  represented  by  a  day's  labor  for  as  much  gold  as 
could  be  purchased  with  45.  Under  these  circumstances  the 
gold  discoveries  took  place;  and  now  mark  what  happened. 
At  once  the  same  workman  who  previously  by  a  day's  labor 
could  earn  but  45.  worth  of  gold  could  now  by  washing  the 
auriferous  sands  earn  from  155.  to  205.  worth.  The  same  ex- 
ertion could  now  procure  for  him  four  or  five  times  as  much 


314  DOCTRINE  OF  COMPARATIVE  COST. 

gold  as  formerly;  in  other  words,  the  cost  of  gold  had  fallen 
in  the  proportion  of  from  four  or  five  to  one.  But  while  the 
cost  of  gold  in  the  colony  was  thus  reduced,  no  change  had 
taken  place  there  in  the  cost  of  producing  other  things.  A 
given  exertion  of  labor  and  abstinence  would  still  procure  the 
same  quantity  as  before  of  corn,  of  meat,  of  wool,  of  tallow. 
It  followed  that  the  comparative  cost  of  producing  gold  and 
other  things  had  been  altered  in  the  immense  proportion  indi- 
cated by  the  reduction  in  the  positive  cost  of  producing  gold ; 
in  other  words,  the  conditions  were  realized  under  which,  ac- 
cording to  the  theory  of  Eicardo,  an  immense  change  ought  to 
take  place  in  the  external  trade  of  the  colonj'- ;  and  this  was 
precisely  what  happened.  From  that  time  until  the  condi- 
tions of  trade  were  again  modified,  partly  through  the  gradual 
exhaustion  of  the  richer  gold  deposits,  and  partly  through 
the  advance  of  prices  in  foreign  markets,  a  period  of  some  four 
or  five  years,  Australia  became  an  importer  of  every  thing 
that  from  its  nature  admitted  of  being  imported ;  and,  what 
is  especially  to  be  noted,  among  the  things  thus  imported 
were  many  which  she  could  have  produced  herself  at  for  less 
cost,  with  far  less  labor  and  abstinence,  than  they  were  pro- 
duced at  in  the  countries  from  which  they  were  brought. 
For  example,  timber  was  imported  from  the  Baltic,  although 
there  were  forests  in  Australia  capable  of  yielding  timber 
quite  good  enough  at  least  for  the  mining  purposes  for  which 
timber  was  mostly  required.  Butter  was  largely  imported 
from  Ireland,  and  I  believe  also  from  England  and  Holland, 
though  the  advantages  possessed  by  Australia  for  dairy  farm- 
ing in  her  unrivaled  pastures  and  abundant  cattle  were  excep- 
tionally great.  Similarly,  with  unlimited  areas  of  fine  agricul- 
tural land,  she  imported  nearly  all  her  food;  and  with  the  ma- 
terials of  leather  cheaper  than  in  any  other  part  of  the  world, 
she  imported  all  her  shoes.  What  was  the  explanation  of 
these  facts?     In  all  cases  one  and  the  same :  it  was  to  be  found 


EXPERIMENTAL  VElilFICATIONS.  315 

in  the  principle  of  comparative  cost.  Australia  had  consider- 
able advantages  over  other  countries  in  respect  to  timber,  but- 
ter, food,  and  shoes;  but  she  had  a  greater  advantage  still  in 
respect  to  gold ;  and  so  it  became  her  interest  to  obtain  the 
former  things  by  means  of  the  latter.  I  have  always  regarded 
the  commercial  results  of  the  Australian  and  Californian  dis- 
coveries (for  things  in  California  followed  a  very  similar 
course)  as  one  of  the  most  striking  experimental  verifications 
which  a  purely  abstract  doctrine  has  ever  received.  Eicardo 
was  considered,  and  is  still  considered  by  some  people,  a  dream- 
er of  dreams,  a  spinner  of  abstract  fancies;  but  his  dreams  and 
abstractions,  when  brought  to  the  test  of  experiment,  as  com- 
monly happens  with  the  dreams  and  abstractions  of  men  of 
genius,  have  proved  to  be  far  more  practical,  far  more  closely 
in  accordance  with  actual  occurrences,  than  the  prognostics  of 
so-called  "practical  men,"  based  though  these  may  have  been 
upon  one  knows  not  what  collections  of  carefully  tabulated 
statistics.  Compare  the  facts  which  I  have  stated  in  connec- 
tion with  the  Australian  trade,  as  illustrating  his  doctrine  of 
"comparative  cost,"  with  the  speculations  of  some  of  our  lead- 
ing bankers  and  actuaries  at  the  time  of  the  occurrence  of  the 
gold  discoveries,  as  to  the  probable  effects  of  those  events  on 
the  course  of  the  money  market — speculations  in  which  one 
writer  confidently  predicts  that  the  increased  abundance  of 
gold  must  lead  to  a  fall  in  its  price;  another,  that  it  would 
lead  to  a  fall  in  the  rate  of  interest;  a  third,  that  the  exporta- 
tion of  gold  from  Australia  would  cease  to  be  profitable,  and 
would  therefore  cease  to  be  carried  on,  as  soon  as  the  price 
of  gold  in  Sydney  rose  to  the  London  level!  All  these,  and 
many  more  absurdities  no  less  glaring,  are  to  be  found  in 
pamphlets,  and  even  in  pretentious  volumes,  published  soon 
after  the  epoch  of  the  gold  discoveries,  b}'-  commercial  men 
who  piqued  themselves  upon  their  knowledge  of  practical  bus- 
iness and  their  contempt  for  abstract  speculation. 


316  ,     DOCTRINE   OF  COMPARATIVE   COST. 

The  external  trade  of  the  gold  countries  presents,  in  a  some- 
what exaggerated  shape,  the  action  of  the  principle  of  compar- 
ative cost.  The  superiority  of  productive  power  was  here,  in 
almost  every  instance,  on  the  side  of  one  of  the  exchanging 
parties — the  Australian  colonies.  The  reader  will  not,  how- 
ever, suppose  that,  in  order  to  the  existence  of  a  trade  between 
nations,  there  is  any  necessity  that  this  particular  state  of  things 
should  occur.  In  point  of  fact,  it  is  probable  that  the  more 
frequent  case  is  that  in  which  the  superiority  of  productive 
power  is  divided  between  the  trading  countries,  each  having 
a  positive  as  well  as  a  comparative  advantage  over  the  other 
in  respect  of  the  commodities'  which  form  its  own  staples. 
Still  it  would  be  a  mistake  to  suppose  that  the  Australian  ex- 
ample represents  a  purely  exceptional  case.  So  far  from  this, 
I  am  inclined  to  believe  that  in  a  large  portion  of  the  trade 
of  the  world — in  most  of  the  trade,  for  example,  carried  on  be- 
tween tropical  and  temperate  regions,  as  well  as  in  the  trade 
between  old  and  new  countries — the  condition  which  we  found 
so  prominent  in  the  Australian  commerce  —  a  superiority  of 
productive  power  in  respect  to  the  staples  on  both  sides  pos- 
sessed by  one  of  the  exchanging  parties — will  also  be  found  to 
obtain.  One  instance,  which  I  find  in  the  work  of  Mr.  Bowen, 
an  American  economist,  may  here  be  given.*  It  occurs  in  the 
case  of  the  trade  between  the  State  of  New  York  and  some 
adjoining  districts  and  the  Island  of  Barbados.  The  trade 
consists  chiefly  of  an  exchange  of  breadstufifs  and  meat  on  the 
side  of  the  former  country  against  vai-ious  kinds  of  tropical 
produce  furnished  by  the  latter.  As  will  be  readily  under- 
stood, Barbados  has  an  immense  advantage  over  the  State 
of  New  York  in  the  raising  of  tropical  products,  such  as  sug- 
ar, coffee,  spices,  etc.;  but  Mr.  Bowen  informs  us  that  it  has 
also  a  decided  advantage  over  the  same  regions  in  the  produc- 

*  Bowen's  "Political  Economy," p.  460. 


OBSCURED  BY  FAULTY  TUEOIIY.  317 

tion  of  food — that  a  given  exertion  of  industry  employed  for 
a  given  time  in  raising  food  in  Barbados  would  be  attended 
with  a  larger  result  than  the  same  exertion  employed  for  the 
same  time  in  the  United  States.  The  advantage,  therefore,  in 
respect  to  both  the  staples  of  the  trade  is  on  the  side  of  Bar- 
bados, and  the  phenomenon  of  the  Australian  trade  is  here 
repeated.  The  explanation,  of  course,  lies  once  more  in  the 
law  of  comparative  cost.  Barbados  and  the  United  States 
find  their  account  in  developing  those  of  their  resources  in 
which  either  possesses  the  greatest  comparative  superiority,  or 
the  least  comparative  inferiority,  in  respect  of  the  other,  em- 
ploying the  products  thus  obtained  as  the^ means  of  supplying 
themselves,  through  trade,  with  others  in  the  production  of 
which  the  advantage  of  either  is  relatively  less  pronounced,  or 
its  disadvantage  greater.  I  have  said  that  this  is  by  no  means 
an  exceptional  case,  but  rather  the  rule,  in  certain  great  depart- 
ments of  cosmopolitan  trade.  It  is  probable,  for  example,  that 
in  a  large  portion  of  the  trade  carried  on  between  the  United 
States  and  Europe  the  advantage  of  production  in  respect  to 
the  staples  on  both  sides  lies  with  the  United  States;  but  this 
fact  is  kept  out  of  sight  through  the  misty  conception  ordina- 
rily prevailing  as  to  the  nature  of  cost  of  production.  Thus, 
in  comparing  the  costs  of  production  of  different  commodities 
in,  say  this  country  and  the  United  States,  people  allow  their 
thoughts  to  run  off  on  questions  of  comparative  wages  and 
profits;  and  finding  wages  and  profits  higher  in  the  United 
States  than  here,  they  are  apt  to  jump  to  the  conclusion  that 
this  is  evidence  of  higher  cost  of  production  in  the  former 
country.  In  truth,  so  far  as  wages  and  profits  are  indications 
of  cost  of  production  at  all — a  point  to  which  I  shall  hereafter 
recur — high  wages  and  profits  are  indications  of  a  low  cost  of 
production,  since  they  are  indications — being  in  fiict  the  direct 
results  of — high  industrial  productiveness;  and  accordingly,  if 
wages  and  profits  are  higher  in  the  United  States  than  here,  it 


318  DOCTRINE   OF  COMPARATIVE   COST. 

is  because  those  things  in  which  wages  and  profits  consist  are 
more  easily  obtained — that  is  to  say,  are  obtained  at  less  cost 
— there  than  here.  The  prevailing  theory,  which  makes  cost 
of  production  consist  in  wages  and  profits,  has  thus  thrown  a 
dense  haze  over  the  working  of  the  principle  on  which  the  in- 
terchange of  commodities  between  different  nations  is  carried 
on.  Indeed,  as  I  shall  hereafter  show,  the  doctrine  in  question 
is  answerable  for  some  of  the  most  plausible  fallacies  of  the 
Protectionist  school.  For  the  moment,  however,  I  am  merely 
concerned  to  point  out  how  this  erroneous  notion  of  cost  tends 
to  conceal  the  true  nature  of  no  small  portion  of  the  trade  of 
the  world. 


CHAPTER  11. 

INTERNATIONAL  TRADE  IN  ITS  RELATION  TO  THE  RATE  OF 

WAGES. 

§  1.  I  HAVE  endeavored  in  the  foregoing  chapter  to  set  forth 
the  theory  of  international  trade,  as  it  was  first  thought  out  by 
Ricardo,  and  subsequently  expounded  by  Mill.  In  doing  so, 
I  remarked  that  the  doctrine,  though  undoubtedly  comprising 
the  more  fundamental  conditions  determining  the  interchange 
of  nations,  is,  nevertheless,  in  certain  respects  defective.  It 
remains  for  me  now  to  point  out  wherein  consists  the  short- 
comings then  referred  to. 

In  the  first  place,  I  must  observe  that  cost  of  production, 
though  it  may  be,  and  generally  is,  the  ultimate  condition  gov- 
erning international  exchange,  is  never  in  any  case  the  proxi- 
mate or  immediate  cause.  That  proximate  or  immediate  cause 
is  not  cost,  but  price.  The  ordinary  merchant  whose  business 
leads  him  into  foreign  trade  knows  nothing  of  "cost  of  pro- 
duction," as  consisting  of  labor  and  abstinence,  and  still  less 
does  he  know  of  "  comparative  cost  of  production."  The  con- 
siderations which  determine  his  conduct  are  far  more  simple. 
He  attends,  not  to  the  cost — the  expenditure  of  labor  and  ab- 
stinence— at  which  commodities  may  be  produced,  but  to  the 
prices  at  which  they  may  be  bought  and  sold,  and  the  only 
comparison  he  enters  into  is  a  comparison  of  the  prices  of  the 
articles  he  deals  in  as  they  are  in  his  own  country  and  in  the 
foreign  market  with  which  he  trades.  When  the  state  of 
prices  in  these  different  localities  is  such  as  to  render  it  prof- 
itable to  transport  commodities  from  one  to  the  other  for  the 


320  WAGES  AXD  FOREIGN  TRADE. 

purpose  of  sale,  he  engages  in  this  operation  and  looks  no  far- 
ther :  when  the  state  of  prices  does  not  admit  of  this,  he  ceases 
to  operate.  Further,  as  Ricardo  himself  pertinently  reminds 
us,  "every  transaction  in  commerce  is  an  independent  transac- 
tion ;''  and  if  there  be  a  prospect  of  profit  on  the  export  or  im- 
port of  any  single  commodity,  that  commodity  will  be  export- 
ed or  imported  wholly  irrespective  of  what  may  be  the  state 
of  the  markets  as  regards  other  commodities.  How  are  these 
facts  to  be  reconciled  with  the  theory  expounded  in  the  last 
chapter,  that  international  trade  is  governed  by  comparative 
cost  of  production  ?  Eicardo's  answer  would  run  in  some 
such  form  as  this :  first,  he  would  say,  by  virtue  of  the  fact 
that  relative  prices  within  each  country  correspond  to,  and 
vary  with,  the  relative  costs  of  commodities  produced  within 
that  country ;  so  that  a  state  of  relative  prices  which  would 
make  it  profitable  to  export  certain  commodities  and  import 
others  would  indicate  a  corresponding  condition  of  the  relative 
costs  of  production  of  the  commodities  thus  exchanged.  And, 
secondly,  he  would  meet  the  difficulty  as  to  the  independent 
character  of  each  commercial  transaction  b}^  showing  that, 
though  independent,  in  the  sense  of  being  undertaken  with- 
out reference  to  an}^  transaction  beyond  itself,  each  commer- 
cial transaction  nevertheless  entails  consequences  which  con- 
nect it  with  subsequent  commercial  transactions.  The  case 
may  be  illustrated  by  a  hypothetical  example.  Suppose  the 
price  of  some  commodity  suitable  for  international  commerce 
to  be  lower  in  country  A  than  in  country  B — I  assume  the 
difference  in  price  to  be  sufficient  to  yield  a  profit  on  the  in- 
vestment during  the  period  between  purchase  and  sale,  and  I 
put  aside,  for  simplicity  of  illustration,  the  element  of  cost  of 
transport — nothing  more  than  this  is  necessary  in  order  that 
the  commodity  should  be  sent  from  the  former  to  the  latter 
country.  It  will  accordingly  be  sent;  and  the  merchant  who 
undertakes  the  transaction  will  get  his  profit.     But  this  is  not 


PROXIMATE  CONDITIONS.  321 

the  end.  The  commodity  being  sold,  its  value  must  be  trans- 
mitted from  country  B,  in  which  the  sale  took  place,  to  coun- 
try A.  The  question  arises,  in  what  form  will  it  be  sent?  If 
it  be  sent  in  the  form  of  some  commodity  produced  in  country 
B,  the  price  of  this  commodity,  to  make  the  transaction  profit- 
able, will  need  to  be  lower  in  country  B  than  in  country  A. 
The  former  commodity  was  lower  in  country  A  than  in  coun- 
try B :  the  latter  will  be  lower  in  country  B  than  in  country 
A.  The  comparative  prices  of  the  two  commodities  will 
therefore  be  different  in  the  two  countries,  and,  prices  being 
ruled  by  costs,  the  transaction  will  only  be  profitable  when  the 
comparative  costs  are  different.  But  country  B  might  pay 
for  its  import,  not  by  the  export  of  a  commodity  of  its  own 
produce,  but  by  remitting  gold.  Let  us  consider  this  case. 
There  are  two  suppositions  possible.  Country  B  either  pro- 
duces gold  or  it  does  not.  If,  taking  the  former  supposition, 
and  assuming  therefore  that  gold  is  for  country  B  a  staple  of 
merchandise,  the  gold  price  of  the  imported  commodity  is  high- 
er in  country  B  than  in  country  A — this  proves  that  the  cost  of 
obtaining  gold  is  lower  relatively  to  the  cost  of  the  commodity 
in  the  former  than  in  the  latter  country.  There  is  thus  a  dif- 
ference in  the  comparative  costs  of  gold  and  of  the  commodit}' 
in  the  two  countries,  and  the  trade  would  be  carried  on  by  an 
exchange  of  one  for  the  other  in  strict  conformitv  with  Eicar- 
do's  doctrine.  But  now  take  the  other  supposition.  Gold,  we 
will  suppose,  is  not  a  product  of  country  B.  Under  these  cir- 
cumstances, and  assuming  further,  for  simplicity  of  illustration, 
that  the  two  countries  trade  exclusively  with  one  another,  it  is 
evident  that  the  trade  can  not  be  carried  on  permanently  upon 
the  terms  of  an  exchange  of  a  commodity  on  the  side  of  coun- 
try A  against  gold  on  that  of  country  B;  for  the  continued 
transference  of  gold  from  the  latter  to  the  former  country 
would  sooner  or  later  act  u23on  prices  in  the  two  places,  lower- 
ing them  in  B  and  raising  them  in  A;  and  then  one  of  two 

21 


322  WAGES  AXD  FOREIGN  TRADE. 

things  would  happen  :  either  the  commodity  which  formed  the 
subject  of  the  trade  would  rise  in  price  in  country  A  till  it  be- 
came no  longer  profitable  to  export  it,  and  then  the  trade  would 
come  to  an  end ;  or  before  this  occurred,  the  price  of  some 
commodity  in  country  B  would  be  brought  below  the  level  of 
its  price  in  country  A;  and  this  commodity  would  become 
then  for  B  the  means  of  pa3'ing  for  its  import.  There  would 
thus  be  established  a  dififei-ence  in  the  comparative  prices  of  the 
exchanged  commodities  in  the  two  countries  ;  and,  prices  with- 
in the  limits  of  each  country  being  governed  by  cost  of  pro- 
duction, this  would  imply  a  corresponding  difference  in  their 
comparative  costs.  Under  all  circumstances,  therefore,  it  would 
be  concluded,  notwithstanding  that  prices  are  the  immediate 
consideration,  and  notwithstanding  that  each  commercial  trans- 
action, so  to  speak,  stands  upon  its  own  merits,  the  fundament- 
al condition  underlying  the  whole,  supplying  the  motives  and 
determining  the  result,  is  the  comparative  costs  of  producing 
commodities. 

The  logic  of  the  foregoing  argument,  which  is  in  substance 
the  argument  employed  in  Eicardo's  exposition  of  the  doctrine, 
appears  to  me  to  be  without  flaw.  But  to  one  of  the  premises 
involved  in  it  I  have  already  taken  exception,  and,  unless  my 
reasoning  is  fallacious,  it  can  no  longer  be  admitted.  It  is  as- 
sumed throughout  that  the  relative  prices  of  commodities  with- 
in the  limits  of  each  country  are  universally — or  at  least  so 
generally  that  the  exceptions  are  not  worth  noticing — governed 
by  the  relative  costs  of  their  production.  Now  I  have  endeav- 
ored to  show  in  an  early  chapter  of  this  work*  that  this  as- 
sumption is  not  well  founded.  Cost  of  production,  as  a  princi- 
ple regulating  value,  is  only  operative  within  the  limits  of  ef- 
fective competition  ;  and,  though  this  condition  is  largely  real- 
ized in  this  and  most  civilized  countries,  and  still  more  exten- 

*  Part  i.,  chap.  iii. 


nturOSED  EMENDATIONS.  323 

sively  in  new  communities  like  our  Australian  colonies  and 
some  American  States,  it  is  yet  far  from  being  universal,  and, 
especially  in  countries  in  which,  as  in  England,  the  social 
structure  is  very  complex  and  of  long  standing,  suffers  numer- 
ous and  serious  checks.  The  consequence  is,  that  cost  of  pro- 
duction, though  the  piincipal  influence  in  the  case,  is  not  the 
only  one.  To  a  considerable  extent  in  countries  of  old  civiliza- 
tion, to  a  less  extent  in  new  communities.  Reciprocal  Demand 
takes  the  place  of  Cost  of  Production  as  the  regulator  of  do- 
mestic prices.  In  all  those  exchanges,  for  example,  carried  on 
between  what  I  have  called  non-competing  industrial  groups, 
the  law  governing  such  exchanges,  and  therefore  governing 
the  relative  prices  of  the  products  proceeding  from  such  groups, 
is  that  furnished  by  the  former,  not  that  furnished  by  the  latter 
principle.  But  prices,  as  we  have  seen,  are  the  proximate  con- 
ditions determining  international  exchange.  It  follows,  there- 
fore, that  international  exchange  is  sometimes  determined,  not 
merely  proximately  but  ultimately  by  other  conditions  than 
cost  of  production  ;  and  that  the  theory  of  that  branch  of  trade, 
as  left  us  by  Ricardo,  is  by  no  means  as  complete  and  ex- 
haustive as  he  and  his  most  distinguished  successors  have 
regarded  it. 

§  2.  It  remains,  then,  that  we  endeavor  to  bring  the  theory 
into  correspondence  with  the  facts  such  as  we  have  found  them 
to  be;  and  in  order  to  this  it  will  be  necessary  to  subject  it  to 
some  such  modification  as  the  following:  The  proximate  con- 
dition determining  international  exchange  is  the  state  of  com- 
parative prices  in  the  exchanging  countries  as  regards  the  com- 
modities which  form  the  subject  of  the  trade.  But  compara- 
tive prices  within  the  limits  of  each  country  are  determined 
by  two  distinct  principles — within  the  range  of  effective  indus- 
trial competition,  by  Cost  of  Production ;  outside  that  range, 
by  Reciprocal  Demand.     The    ultimate  conditions,  therefore, 


324  WAGES  AND  FOREIGN  TRADE. 

on  which  international  trade  depends  are,  where  the  commodi- 
ties are  produced  in  each  country  under  a  regime  of  competi- 
tion, a  difference  in  the  comparative  costs  of  producing  them ; 
where  effective  competition  does  not  obtain  such  a  state  of  Re- 
ciprocal Demand  among  non-competing  groups  as  shall  issue 
in  a  difference,  in  the  exchanging  countries,  in  the  comparative 
prices  of  the  products  proceeding  from  such  groups. 

§  3.  And  now,  in  order  to  exhibit  the  practical  consequences 
involved  in  the  modification  of  the  received  doctrine  just  pro- 
posed, and  to  satisfy  the  reader  that  the  point  raised  is  some- 
thino;  more  than  a  mere  formal  and  barren  criticism,  I  will  ask 
his  attention  to  a  question  which  has  been  of  late  a  good  deal 
discussed — the  connection,  namely,  between  the  rate  of  wages 
prevailing  in  a  countrj^  and  the  course  and  character  of  its  ex- 
ternal trade. 

It  is  a  very  general  opinion  among  commercial  men  in  this 
country  that,  if  not  the  most  important,  at  least  at  the  present 
time  the  most  urgent,  condition  i-equired  for  promoting  the  de- 
velopment of  British  commerce,  is  that  the  rate  of  wages  should 
generally  be  reduced,  or,  at  the  least,  should  not  be  permitted 
to  rise  above  its  present  level.  "  Dear  labor,"  says  Mr.  Brassey, 
expressing  an  opinion  which  has  since  been  echoed  in  many  a 
leading  column,  "is  the  great  obstacle  to  the  extension  of  Brit- 
ish trade."  Nor  is  this  opinion  by  any  means  confined  to 
Great  Britain.  Ask  a  New  England  merchant  why  the  United 
States  are  unable  to  compete  with  Great  Britain  in  the  manu- 
facture of  cotton  fabrics,  and  it  is  one  hundred  to  one  he  will 
tell  you  it  is  owing  to  the  high  price  of  labor  in  the  Union  as 
compared  with  the  low  rates  prevailing  on  this  side  of  the  At- 
lantic. Ask,  again,  a  Melbourne  merchant  why  Victoria,  not- 
withstanding her  fine  agricultural  resources,  still  continues  to 
import  a  portion  of  her  food,  and  the  answer  will  be  similar: 
the  higher  price  of  labor  in  Victoria  than  in  the  other  Aus- 


THE  COMMERCIAL  VIEW.  325 

traliaii  colonies,  or  in  the  districts  of  South  America  from 
which  corn  may  be  obtained,  will  be  considered  as  telling  us 
all  it  is  needful  to  know  in  order  to  a  full  comprehension  of 
the  fact. 

Such  is  the  nearly  universal  opinion  on  this  subject  among 
commercial  men ;  and  yet  it  needs  but  little  consideration  to 
show  that  it  is  in  direct  conflict  with  the  received  economic 
doctrine,  as  expounded  by  Eicardo,  as  to  the  causes  governing 
foreign  trade.  For  it  must  be  remembered  that  by  cost  of  pro- 
duction, at  all  events  in  connection  with  the  theory  of  foreign 
trade,  both  Ricardo  and  Mill  understood  wliat  I  have  maintain- 
ed to  be  in  all  cases  the  proper  signification  of  the  phrase — 
namely,  cost  as  measured  in  number  of  day s^  labor  and  absti- 
nence; and  it  is  by  comparative  cost  as  thus  measured  that, 
according  to  the  theory,  international  trade  is  governed.  But 
inasmuch  as  a  rise  or  fall  in  the  rate  of  wages  has  no  effect  on 
the  comparative  quantities  of  labor  required  for  the  prod  fiction 
of  different  commodities,  it  is  evident  that  if  the  received  theo- 
ry be  true,  this  circumstance  must  be  incapable  of  altering  in 
any  way  the  course  of  foreign  trade ;  and  this  was  undoubted- 
ly Ricardo's  opinion.  Indeed  it  was  a  leading  doctrine  in  his 
scheme  of  ideas,  on  which  he  insisted  with  reiterated  emphasis, 
that  high  wages  do  not  make  high  prices — a  position  which  of 
itself  involves  the  negative  of  the  prevailing  view.  There  can 
be  no  question,  therefore,  that  the  opinion  so  widely  entertain- 
ed as  to  the  effect  of  WMges  on  foreign  trade  finds  no  sanction 
whatever  in  the  theory  of  Ricardo.  I  have  already,  however, 
shown  reasons  for  regarding  that  theory  as  imperfect.  As  I 
view  the  case,  external  trade  is  governed  proximately  by  rela- 
tive prices,  and  relative  prices  are,  in  some  instances,  not  in- 
deed determined  by  wages,  but  so  intimately  connected  with 
wages  that  the  movements  of  the  tw^o  phenomena  are  steadi- 
ly coincident.  The  theory  of  international  trade,  therefore,  as 
I  hold  it,  does  not  exclude  the  possibility  of  its  course  being 


326  WAGES  AND  FOREIGN  TRADE. 

affected  by  movements  in  the  rate  of  wages :  at  the  same  time 
I  believe  that  what  may  be  described  as  the  commercial  view 
of  this  subject  is  almost  wholly  erroneous. 

Let  us  consider  the  sort  of  argument  by  whiclL  it  may  be 
supposed  the  opinion  in  question  would  be  supported.  It 
would,  I  apprehend,  run  in  some  such  form  as  the  following: 
taking,  for  example,  the  case  of  wheat  imported  into  Victoria 
from  South  Australia  or  from  the  nearest  South  American 
ports,  it  would  be  argued  that  this  was  owing  to  the  inability 
of  Victoria  to  compete  with  these  latter  countries,  owing  to 
the  high  price  of  her  labor.  Let  the  price  of  labor  in  Victoria 
only  fall  to  the  same  level  as  in  the  countries  from  which  it 
imports  its  wheat,  it  would  be  plausibly  urged,  and  it  will  at 
once  become  profitable  to  raise  wheat  in  Victoria  from  soils 
from  which  it  can  not  now  be  raised  with  profit.  What  would 
be  the  reply  of  Ricardo  to  this  argument?  He  would  answer 
that  if  wages  fell  in  agriculture,  they  would  also  fall  in  gold- 
mining,  in  sheep-farming,  and  in  all  the  other  industries  of  the 
colony.  The  relative  attractiveness  of  the  several  occupations, 
as  investments  for  capital,  would  not  be  altered,  and  there 
would  be  no  reason  that  ca})ital  should  be  distributed  among 
them  in  other  proportions  than  at  present.  It  is  true  indeed 
that,  with  a  reduced  rate  of  wages,  the  cultivation  of  wheat 
would  yield  a  profit  where  it  would  not  yield  one  now,  but 
that  is  not  the  question.  The  question  is,  would  it  yield  the 
rate  of  'profit  current  in  the  colony?  Now  it  must  not  be  for- 
gotten that  the  change  which  we  suppose  to  have  taken  place 
— a  fall  in  general  wages  while  the  conditions  of  production 
remain  in  other  respects  unaffected — would  imply  a  rise  in 
general  profits.  Australian  farmers,  therefore,  would  not  be 
satisfied  with  the  rate  of  profit  which  they  now  receive ;  they 
would  expect  as  high  a  return  upon  their  capital  as — allow- 
ance made  for  the  special  circumstances  of  different  pursuits — 
could  be  got  in  other  occupations;  and  this  they  could  only 


THE  COMMERCIAL  VIEW.  327 

obtain  by  confining  their  operations  to  lands  of  equal  fertility 
with  those  which  they  now  cultivate.  In  a  word,  the  change 
in  the  rate  of  wages  being  general,  and  affecting  all  occupa- 
tions alike,*  there  would  be  no  more  reason  for  extending  the 
employment  of  capital  in  agriculture  than  for  doing  so  in  any 
other  branch  of  production.  The  capital  at  the  disposal  of  the 
colony,  under  a  low,  as  under  a  high,  rate  of  wages,  would, 
therefore,  continue  to  be  distributed  among  the  various  indus- 
tries pretty  much  as  it  now  is ;  and  Victoria  would  have  pre- 
cisely the  same  reasons  as  at  present  for  importing  a  portion 
of  her  food.f  It  need  scarcely  be  added  that  this  reply,  what- 
ever its  merit,  would  be  not  less  valid  against  the  same  argu- 
ment whether  urged  in  Melbourne,  New  York,  or  London. 

§  -i.  It  is  evident  that  the  reply  which  I  have  attributed  to 

*  As  has  been  pointed  out  by  Ricardo  and  others,  it  is  not  strictly  true  that  a 
fall  or  rise  in  general  wages  would  aflfect  all  industries  alike.  Industries  in  which 
fixed  capital  was  largely  employed  would  be  less  affected  by  the  change  than  those 
in  which  the  outlay  consisted  mainly  of  wages,  and  the  result  would  be  made  man- 
ifest by  a  change  in  the  relative  values  of  tlie  products  of  the  respective  industries. 
These  are  details,  however,  into  which  it  is  scarcely  necessary  to  enter  in  arguing 
the  general  question  of  the  effect  of  wages  on  foreign  trade.  So  far  as  they  took 
effect,  however,  the  course  of  foreign  trade  would  no  doubt  undergo  more  or  less 
modification,  but  by  no  means  necessarily  in  the  direction  which  the  common 
opinion  supposes.  A  fall  in  wages,  for  example,  might  easily  have  the  effect  of 
checking  instead  of  promoting  the  exportation  of  an  article  if  it  happened  to  be 
one  in  the  production  of  which  fixed  capital  was  largely  em])loyed  ;  as,  on  the 
other  hand,  a  rise  in  wages  might  lead  to  the  exportation  of  a  commodity  which 
it  had  not  previously  been  profitable  to  export.  In  the  ])articular  instance  dis- 
cussed in  the  text  the  circumstance  in  question  would  have  scarcely  any  practical 
operation,  the  industries  of  a  new  country  like  Australia  standing  jiretty  much  on 
the  same  footing  as  regards  the  use  of  fixed  capital. 

1 1  shall  be  told,  perhaps,  that  for  some  time  past  Victoria  has,  as  a  matter  of 
fact,  year  after  year  extended  her  agriculture  and  curtailed  her  importation  of 
food  from  abroad ;  and  tliat  this  has  been  synchronous  with  a  fall  of  wages  in  the 
colony.  The  fact  is  so,  and  I  shall  presently  have  occasion  to  point  out  the  real 
connection  between  the  two  phenomena. 


328  WAGES  AND  FOREIGN  TBADE. 

Kicardo  is  valid  on  the  assumption  which  he  constantly  makes, 
that  industrial  competition  is  effective  over  the  entire  range  of 
a  country's  industry;  but  it  is  equally  plain  that  it  ceases  to 
be  cogent  just  in  the  degree  in  which  this  assumption  ceases 
to  be  true  in  fact.  In  old  countries  like  England,  as  I  have 
pointed  out,  the  regime  of  industrial  monopolj^  covers  a  con- 
siderable area,  but  even  in  new  communities  like  the  Austra- 
lian colonies  competition  is  not  quite  universal.  I  shall  now 
advert  to  an  example  of  this  failure  of  industrial  competition 
furnished  by  the  industry  of  Australia  which  will  set  the  point 
at  issue  in  a  clear  light. 

As  all  the  world  knows,  the  colonies  of  Australia  have  been 
mainly  peopled  by  immigrants  from  this  country  and  their 
descendants.  Among  the  population  as  thus  constituted  in- 
dustrial competition  would,  I  should  apprehend,  be  nearly,  if 
not  quite  universally,  effective.  No  one  would  be  excluded 
by  law,  by  social  circumstances,  or,  after  he  had  been  a  short 
time  in  the  colony,  by  want  of  means,  from  taking  part  as  a 
laborer  in  any  industrial  occupation.  If  this  be  so,  wages 
throughout  the  principal  industries  of  the  country  would  fol- 
low the  law  which  apportions  remuneration  to  sacrifice,  as  as- 
sumed by  Kicardo;  and  a  rise  or  fall  of  wages  would  conse- 
quently within  this  range  have  no  effect  upon  the  distribution 
of  capital  among  the  various  industries,  nor,  therefore,  upon 
its  foreign  trade.  But  into  the  ordinary  population  a  small 
infusion  of  alien  races  has  found  entrance ;  in  particular,  the 
Chinese  have  found  their  way  into  Victoria  and  New  South 
Wales,  and  for  some  years  a  considerable  importation  of  Poly- 
nesian laborers  into  Queensland  has  been  in  progress.  These 
people  do  not  take  part  in  the  general  industrial  competition 
of  the  country;  but  partly  through  the  prejudices  existing 
against  them,  partly  through  physical  or  intellectual  inability, 
are  confined  to  a  few  of  the  simple  and  cruder  industries.  Ii 
results  that  the  rate  of  remuneration  in  their  case  fails  to  fol- 


ILLUSTRATIVE  EXAMPLES.  32t) 

low  the  same  rule  which  holds  among  the  Anglo-Saxon  popu- 
lation. A  rise  or  full  of  wages  may  occur  among  those  alien 
races  without  affecting  wages  generally  in  the  colony,  and  con- 
sequently may  affect  tlie  relative  attractiveness,  as  investments 
for  capital,  of  the  particular  industries  in  which  they  are  em- 
ployed. In  this  way  the  course  of  foreign  trade  may  come 
to  depend  upon  the  price  at  which  a  particular  kind  of  labor 
may  be  obtained.  The  most  decisive  example  in  point  is  that 
of  the  Polynesian  laborers  in  Queensland.  Sugar  cultivation 
has  been  started  in  that  colony,  and  it  is  asserted — so  far  as 
I  can  gather,  with  good  reason — that  the  prosperity  and  even 
the  continuance  of  the  industry  depends  upon  the  possibility 
of  obtaining  cheap  labor  from  Polynesia.  The  immigrant 
from  this  country  is  but  ill  fitted  to  endure  the  exposure  to 
the  extreme  heat  of  that  region  which  labor  in  the  sugar  fields 
demands,  and  consequently  can  not  be  drawn  to  that  work 
unless  by  the  inducement  of  a  proportionally  high  reward. 
But  the  Polynesian  can  expose  himself  without  detriment  to 
a  tropical  climate;  the  processes  of  sugar  cultivation  are  of  a 
simple  mechanical  sort  such  as  the  rudest  laborer  may  per- 
form ;  and,  his  expectation  of  reward  not  being  pitched  high, 
he  is  easily  induced,  for  a  rate  of  pay  considerably  under  that 
prevailing  in  the  colony,  to  hire  himself  for  the  work.  On 
the  other  hand,  the  Polynesian  is  unfitted,  from  his  habits,  and 
to  some  extent  from  his  inferior  physique,  for  taking  part,  ex- 
cept in  a  quite  subordinate  way,  in  the  ordinary  mining,  pas- 
toral, and  agricultural  occupations.  It  results  from  all  this 
that  the  possibility  of  cultivating  sugar  in  Queensland  with 
the  ordinary  profits  of  the  place  depends  almost  entirely  on 
the  presence  there  of  these  Polynesian  laborers;  and  sugar  be- 
ing mainly  used  as  an  article  of  export,  it  comes  to  pass  that 
the  course  of  foreign  trade  in  this  article  turns  almost  entirely 
upon  a  question  of  wages. 

The  case  I  have  taken  for  illustration  affords  a  somewhat 


330  WAGES  AND  FOREIGN  TRADE. 

exaggerated  example  of  the  consequences  which  may  arise  in 
the  foreign  trade  of  a  country  from  an  interruption  to  the  free 
play  of  industrial  competition.  But  though  the  results  may 
be  less  conspicuous,  they  are  in  character  and  principle  the 
same,  wherever  a  similar  interruption,  in  whatever  degree,  is 
experienced.  In  Australia  the  obstacle  to  free  competition 
lies  in  difference  of  race.  In  Great  Britain  the  impediments 
are  of  a  social  and  material  kind ;  but  the  economic  effects  are 
identical.  In  each  case  alike  partial  and  limited  movements 
in  the  wages  of  labor  are  rendered  possible ;  and,  in  the  man- 
ner I  have  explained  in  a  former  chapter,*  such  partial  and 
limited  movements  are  always  attended  by  corresponding 
changes  in  the  relative  prices  of  commodities.  But,  as  we 
have  seen,  the  relative  prices  of  commodities  are  the  proxi- 
mate condition  on  which  the  course  of  foreign  trade  depends. 

So  far,  therefore,  the  theory  of  foreign  trade,  modified  in  the 
manner  I  have  proposed,  finds  room  for  the  common  notion, 
at  least  to  the  extent  of  admitting  the  existence  of  cases  in 
which  international  trade  may  be  affected  by  changes  in  the 
rate  of  wages- — a  view  which  the  theory,  as  it  came'  from  the 
hands  of  Eicardo,  absolutely  excludes.  The  nature  and  ex- 
tent, however,  of  the  results  which  may  accrue  from  occur- 
rences of  this  kind  are  by  no  means  of  that  simple  and  obvi- 
ous character  which  is  commonly  supposed.  It  will  serve  to 
clear  our  ideas  upon  this  point  if  we  consider  the  possible  con- 
sequences involved  in  the  following  hypothetical  case. 

Let  us  suppose  a  fall  of  wages  to  take  place  in  some  leading- 
branch  of  English  manufacture  —  say  Shefiield  cutlery — what 
would  be  the  effect  of  this  on  the  external  trade  of  England? 
It  has  been  alroad}'  seen  that,  if  the  change  supposed  were  ac- 
companied by  a  corresponding  change  over  the  whole  field  of 
English  industry,  the  effect  would  be  nil  upon  the  distribution 

*  Part  ii.,  cliap.  ii. 


ILLUSTRATIVE  EXAMPLES.  331 

of  capital  in  tbe  country,  and  therefore  upon  the  course  of  our 
external  trade ;  but  the  same  conclusion  may  easily  be  reached 
by  another  path.  For  example,  the  common  notion  is  that  a 
general  fall  of  wages  would  lead  to  a  general  fall  of  prices,  and 
this  again  to  an  immense  extension  of  the  export  trade  of  the 
country.  Now,  supposing  this  result  to  happen,  it  is  at  least 
evident  that  there  would  be  nothing  in  the  case  to  cause  a  cor- 
responding extension  of  our  import  trade.  Observe  then  what 
would  ensue.  Foreign  nations  would  become  heavily  our  debt- 
ors, and  a  great  flow  of  gold  would  set  in  from  all  quarters  to- 
ward England,  which,  becoming  the  basis  of  new  creations  of 
credit,  would  quickly  reproduce  the  former  state  of  wages  and 
prices,  when  our  export  trade  would  at  once  return  to  its  for- 
mer limits.  We  are  thus,  though  by  a  different  route,  con- 
ducted to  the  same  conclusion  as  before,  that  a  movement  of 
wages,  where  it  is  general,  can  have  no  effect  upon  foreign 
trade.  Let  us  now  consider  what  the  result  would  be,  sup- 
posing the  fall  in  wages  not  to  extend  beyond  the  group  of 
trades  in  effective  competition  with  the  principal  industries  of 
Shefiield.  It  is  evident  that  it  is  onl}^  in  so  far  as  the  fall  in 
wages  is  followed  by  a  fall  in  prices  that  it  can  affect  foreign 
trade  at  all.  I  will  assume,  then,  that  the  prices  of  Sheffield 
manufactures  fall  in  proportion  to  the  fall  in  Sheffield  wages; 
and  on  this  assumption  any  of  three  possible  consequences 
might  ensue.  The  increased  demand  of  foreign  countries  for 
Sheffield  wares  might  be  in  proportion  to  their  increased  cheap- 
ness, or  it  might  be  in  less  proportion  or  in  greater.  In  the 
first  case,  while  sending  a  greater  quantity  of  cutlery  abroad, 
we  should  only  send  the  same  value :  foreign  nations  would  be 
in  our  debt  as  regards  this  item  in  the  international  account  to 
no  D-reater  extent  than  now,  and — no  chancre  having  occurred 
in  the  price  of  foreign  commodities — we  should  consequently 
receive  from  them  the  same  quantity  of  the  produce  of  their 
industry,  neither  more  nor  less,  than  they  now  send  us.     The 


332  WAGES  JXD  FOREIGX  TRADE. 

net  result,  therefore,  of  what  had  happened  would  be  a  gain 
for  all  consumers  of  Sheffield  wares,  whether  living  in  this 
country  or  abroad,  obtained  at  the  expense  of  the  workmen 
of  Sheffield.  Sheffield  employers  might  reap  some  temporary 
gains,  but  competition  would  quickly  reduce  their  profits  to 
the  usual  rate:  as  a  permanent  result,  they  would  be  no  bet- 
ter off  than  before ;  while  the  foreign  trade  of  England  would 
not  be  extended.  Take  now  the  second  case,  and  let  us  sup- 
pose that  the  increased  demand  from  abroad  is  less  than  in 
proportion  to  the  fall  in  price  of  Sheffield  wares.  In  this  case, 
also,  the  consumers  of  those  wares  would  everywhere  be  ben- 
efited, but  the  foreign  trade  of  the  country,  so  far  as  Sheffield 
contributed  to  it,  would,  at  least  in  the  first  instance,  be  pos- 
itively curtailed.  This,  however,  would  be  merely  the  initial 
effiict.  The  reader  must  remember  that,  by  hypothesis,  the 
export  of  Sheffield  manufactures,  though  greater  in  point  of 
quantity,  has,  through  the  fall  in  price,  become  smaller  in  value 
than  formerly.  It  follows  that  our  exports — assuming  the  state 
of  things  previously  in  existence  to  have  been  one  of  commer- 
cial equilibrium,  and  that  other  things  remain  the  same — would 
be  insufficient  to  discharge  our  foreign  liabilities.  An  efflux  of 
gold  from  England  to  foreign  countries  would,  therefore,  set  in, 
and  would  continue  so  long  as  prices  here  and  in  foreign  coun- 
tries remained  at  the  same  relative  level  which  had  rendered 
the  drain  necessary.  This,  however,  could  not  be  for  long. 
The  transfer  of  gold  from  England  to  foreign  countries  would, 
in  the  usual  way,  lead  to  a  re-adjustment  of  relative  prices, 
and,  as  a  consequence  of  this,  to  a  re-adjustment  of  reciprocal 
demand.  What  the  exact  character  of  this  re-adjustment 
would  be  it  is  impossible  a  2^1'iori  to  say.  English  demand  for 
foreign  products  might  fall  off,  which  would  imply  a  contrac- 
tion of  English  foreign  trade,  or  foreign  demand  for  English 
products  might  increase,  which  would  imply  an  augmentation; 
or  both  consequences  might  in  different  degrees  be  realized. 


ILLUSTRATIVE  EXAMPLES.  333 

which  would  be  consistent  with  either  diminution  or  increase. 
All  that  is  certain  is  that,  in  the  definitive  result,  commercial 
equilibrium  would  be  restored— the  exports  of  England,  that 
is  to  say,  would  be  brought  into  due  relation  to  her  foreign  li- 
abilities.* The  third  possible  case  is  that  the  foreign  demand 
for  Sheffield  wares  should  increase  in  a  proportion  beyond  that 
of  their  cheapness.  In  this  event  foreign  nations  would,  in  the 
first  instance,  become  our  debtors  to  a  greater  extent  than  the 
proceeds  of  their  ordinary  trade  would  cover.  An  eflQux  of 
gold  would  now  set  in  from  them  to  us ;  and  the  necessity 
would  again  arise  of  a  change  in  the  reciprocal  demand  of  En- 
gland and  foreign  nations.  Commercial  equilibrium  would 
here,  too,  ultim.ately  be  re-established;  but,  as  in  the  former 
case,  the  end  might  be  reached  by  any  of  the  same  three 
methods,  and  the  definitive  result  would  be  equall\^  compati- 
ble with  a  contraction  or  an  expansion  of  international  trade. 

In  the  foregoing  example  I  have  argued  on  the  assumption 
of  a  fall  in  wages  occurring  in  some  leading  branch  of  English 
industry.  If  instead  of  a  fall  we  supposed  a  rise,  and  this 
rise  to  be  confined  to  some  particular  departments  of  trade,  we 
should  find  ourselves  conducted,  by  a  similar  course  of  reason- 
ing, to  precisely  the  same  conclusion.  In  the  first  instance  the 
advance  in  price  would  check  foreign  demand  for  the  English 
commodities  which  had  risen,  but  this  would  lead  to  a  re-dis- 
tribution of  the  precious  metals  between  England  and  the 
countries  with  which  she  traded,  and  this  again  to  a  change 
in  relative  prices,  which  would  issue  in  a  restoration  of  the 
equilibrium  of  trade  —  a  result,  in  this  case  also,  compatible 
alike  with  augmentation  or  decrease. 

We  may,  then,  sum  up  the  results  of  this  part  of  our  in- 
vestigation :  Partial,  as  opposed  to  general,  movements  in  the 


*  I  am  lieie  obliged  to  anticipate  a  portion  of  the  theory  of  international  values 
to  be  set  fortli  in  ilie  next  chapter. 


334  WAGES  AND  FOREIGN  TRADE. 

wages  of  labor  affect  the  foreign  trade  of  a  country,  but  it  is 
impossible  to  say  a  priori  in  what  direction,  whether  of  expan- 
sion or  of  contraction.  To  know  this  it  would  be  necessary 
to  know  what  the  definitive  result  would  be  as  regards  rela- 
tive prices  in  the  country  in  which  the  change  of  wages  had 
occurred,  and  those  with  which  it  trades.  If  this  were,  on  the 
whole,  to  augment  the  difference  in  relative  prices  in  the  two 
places,  an  extension  of  international  trade  would  be  the  conse- 
quence; but  in  the  contrary  event,  which  is  equally  possible 
and  probable,  the  opposite  effect — a  contraction  of  trade — is 
that  which  would  be  realized. 

§  5.  Let  me  now  state  the  point  to  which  the  general  argu- 
ment has  been  carried.  I  have  endeavored  to  show  that  a  rise 
or  fall  of  wages  in  a  country,  so  far  forth  as  it  is  general,  has 
no  tendency  to  affect  the  course  of  foreign  trade :  a  fall  in  the 
general  rate  does  not  tend  to  an  extension  of  foreign  trade,  any 
more  than  a  rise  in  that  rate  necessitates  a  contraction.  On 
the  other  hand,  I  have  pointed  out  that,  where,  owing  to  the 
existence  of  impediments  to  the  action  of  free  industrial  com- 
petition, partial  movements  in  the  rate  of  wages  occur,  inas- 
much as  these  issue  in  a  change  of  relative  prices,  the  course 
of  foreign  trade  is  in  this  case  affected,  though  it  is  impossible, 
previous  to  experience,  to  say  in  what  direction  the  change 
may  take  place.  So  far  the  argument  has  been  carried.  I 
desire  now  to  consider  a  problem  which,  except  upon  its  nega- 
tive side,  has  not  yet,  so  far  as  I  know,  received  the  attention 
of  economists — I  mean  the  nature  of  the  connection  that  exists 
between  general  wages  and  foreign  trade.  We  have  seen  that 
that  connection  is  not  one  of  cause  and  effect;  but  wo  have  yet 
to  discover  what  its  nature  is.  General  wages  do  not  determine 
foreign  trade,  but  it  by  no  means  follows  that  the  two  phenom- 
ena are  not  intimately  connected;  and  this  we  shall  find  to  be, 
in  point  of  fact,  the  case. 


FLUCTUATION  IN  rillCE  OF  LABOR.  335 

I  recur  once  again  to  that  rich  repertory  of  economical  expe- 
rience, the  recent  history  of  our  Australian  colonies.  As  we 
have  already  seen,  the  discovery  of  gold  in  those  colonies  in 
1851  was  the  signal  for  a  sudden  and  extraordinary  develop- 
ment of  foreign  trade,  which  was  accompanied  by  an  equal- 
ly sudden  and  extraordinary  advance  in  the  wages  of  labor. 
This  remarkable  movement  reached  its  culmination  about  the 
year  1852  or  1853,  when  the  rate  of  wages  in  the  rough  work 
of  gold  mining  was,  for  some  time,  maintained  at  the  very 
high  point  of  205,  a  day.  "VVe  have  unfortunately  no  exact 
commercial  statistics  previous  to  1856 ;  but  in  that  year  the 
total  external  trade  of  the  principal  gold  colony,  Victoria, 
amounted  to  over  £30,000,000  sterling.  From  1856  to  the 
present  time  the  history  of  the  colony  has  been  one  of  extraor- 
dinary prosperity ;  but  coincidently  with  this  prosperity  we 
notice  two  remarkable  facts — a  pretty  steady  decline  through- 
out the  whole  of  the  period  at  once  in  the  w^ages  of  labor  and 
in  the  dimensions  of  external  trade.  As  I  have  just  said,  that 
trade  in  1856  had  attained  the  large  aggregate  of  £30,000,000 
sterling.  In  1870,  after  fourteen  years  of  such  prosperity  as 
I  have  referred  to,  it  stood  at  less  than  £25,000,000.  The  fall 
in  wages  has  not  been  less  striking.  It  had  risen  to  20s.  a 
day  :  it  has  now  fallen  for  the  same  mining  labor  to  about 
half  that  rate.  Wages  and  foreign  trade  have  thus  declined 
pari  passu;  every  step  in  the  descent  of  wages  having  been 
accompanied  by  the  dropping  off  of  some  former  import,  and, 
as  a  consequence  of  this,  a  corresponding  extension  of  domestic 
industry  in  the  colony.  The  facts,  it  will  be  observed,  nega- 
tive most  decisively  the  prevalent  commercial  opinion  on  the 
subject  under  consideration.  Dear  labor  in  1852  did  not  pre- 
vent the  sudden  and  extraordinary  expansion  of  Victorian 
trade,  any  more  than  comparatively  cheap  labor  in  1870  has 
been  able  to  prevent  its  contraction.  On  the  other  hand,  it 
must  be  allowed  that  the  power  of  Victoria  to  compete  with 


336  WAGES  AND  FOBEIGN  TRADE. 

foreign  nations,  evidenced  as  this  has  been  by  an  extension  of 
her  domestic  industry  which  has  been  coincident  with  a  fall  in 
the  price  of  labor,  seems  to  furnish  corroboration  of  the  popu- 
lar notion  at  the  root  of  the  commercial  doctrine.  It  is  indeed 
very  evident  that  all  three  facts — the  decline  of  foreign  trade, 
the  fall  in  the  rate  of  wages,  and  the  extension  of  domestic 
production — are  intimately  connected;  but  the  question  is, 
what  is  the  nature  of  the  tie  that  binds  them?  The  true  an- 
swer is  to  be  found  in  the  flict  that  the  several  occurrences  are 
co-ordinate  effects  of  a  common  cause ;  that  cause  being  the 
gradual  exhaustion  of  the  richer  and  more  accessible  gold  de- 
posits. As  industry  became  less  productive  in  raising  gold, 
the  amount  to  be  divided  between  laborer  and  capitalist  be- 
came less,  and  money  wages  therefore  fell.  As  gold,  with  the 
increased  difiiculty  of  production,  became  more  costly,  it  be- 
came, just  in  the  same  degree,  a  less  profitable  means  of  ob- 
taining the  various  commodities  which  Victoria  required :  she 
ceased,  therefore^  to  employ  this  means  to  the  same  extent  as 
formerly,  and  began  instead  to  produce  commodities  directly 
from  her  own  resources :  in  other  words,  her  foreign  trade  un- 
derwent contraction,  and  her  domestic  industry  was  extended. 
And  as  these  results  have  been  the  consequence  of  a  decline  in 
the  productiveness  of  the  gold  mines,  so,  it  might  be  confident- 
ly predicted,  a  new  discovery  of  auriferous  deposits  equal  in 
abundance  and  richness  to  those  of  the  earlier  period  would 
have  the  effect  of  reversing  the  present  course  of  development, 
and  by  a  single  stroke  send  up  money  wages,  give  a  fresh  im- 
pulse to  external  trade,  and  arrest  the  extension  of  miscellane- 
ous industries  in  the  colony.  Such  is  the  nature  of  the  con- 
nection between  the  rate  of  wages  in  a  country  and  the  course 
of  its  external  trade  and  domestic  industry.  They  are  co-or- 
dinate effects  of  a  common  cause,  and  are  consequently  symp- 
toms and  indications  of  each  other. 

In  the  illustration  just  given  the  condition  on  wliich  the  sev- 


ILLUSTRATIVE  EXAMPLES.  337 

eral  results  depended  was  the  changing  cost  of  gold  ;  and — the 
change  being  great  in  point  of  degree,  and  gold  being  also  the 
material  of  money — the  results  have  been  more  palpable  and 
striking  than  they  would  have  been  had  the  cheapened  com- 
modity been  one  of  ordinary  consumption.  But  the  effect, 
though  less  palpable,  would  not  really  be  different  in  this  lat- 
ter case — provided  only  the  article  affected  were  of  a  kind  in 
tolerably  extensive  demand  and  suited  for  exportation  to  for- 
eign countries.  I  am  unfortunately  unacquainted  with  any 
actual  occurrence  sufficiently  simple  and  decisive  to  enable  me 
to  exhibit,  in  a  perfectly  unequivocal  light,  the  operation  of 
the  principle  in  this  more  general  form,  and  I  must,  therefore, 
have  recourse  for  this  purpose  to  hypothesis.  I  will  then  sup- 
pose that,  as  the  result  of  some  mechanical  invention  not  known 
to  other  nations,  a  great  improvement  has  been  effected  in  the 
manufacture  of  woolen  goods  in  England — an  improvement 
which  would  reduce  the  cost  of  manufacturing  this  class  of 
goods  in  as  great  a  proportion  as  the  cost  of  gold  in  Australia 
was  reduced  by  the  discovery  of  gold — what  would  be  the  ef- 
fect of  such  an  occurrence  on  the  external  trade  of  England 
and  on  the  remuneration  of  labor  in  the  country?  In  the  first 
instance,  it  is  evident,  there  would  be  an  extensive  diversion 
of  English  capital  into  the  branch  of  manufacture  thus  benefi- 
cially affected ;  and  the  increased  production  of  woolen  goods 
would  lead  to  a  foil  in  their  price,  which  would  only  stop  when 
brouo;ht  into  the  usual  relation  with  their  now  diminished  cost 
of  production.  With  the  fall  in  price  a  large  increase  would 
take  place  in  the  foreign  demand  for  English  woolens.  As, 
however,  there  would  be  nothing  in  the  case  to  cause  a  corre- 
sponding increase  in  the  demand  of  England  for  the  commodi- 
ties of  foreign  countries,  a  transfer  of  gold  from  the  latter  to 
the  former  in  payment  of  the  enlarged  exportations  would  be 
necessary,  and  this  would  continue  until,  through  a  rise  of 
prices  in  England  and  a  foil  of  prices  abroad,  the  equilibrium 

29 


338  WAGES  AXD  FOREIGN  TRADE. 

of  trade  was  re-established.  At  this  point  many  articles 
which  had  formerly  been  produced  in  England,  and  perhaps 
produced  for  exportation,  would  now  be  selling  at  lower  prices 
in  foreign  countries.  Such  articles  would  cease  to  be  produced 
in  England,  or  at  all  events  to  be  produced  on  the  same  scale 
as  formerly,  and  would  in  greater  or  less  quantity  begin  to  be 
imported  from  abroad.  Ultimately  we  should  arrive  at  this 
definitive  result:  a  larger  proportion  than  formerlj^  of  the  ag- 
gregate capital  of  England  would  be  devoted  to  the  production 
of  woolen  goods,  a  smaller  proportion  to  her  other  miscellane- 
ous industries;  while  the  things  formerly  produced  by  the  dis- 
placed industries  would  now  be  obtained  from  abroad  through 
an  exchange  for  woolen  goods.  In  other  words,  England 
would  avail  herself  of  her  great  comparative  superiority  in  the 
production  of  woolens  for  the  purpose  of  obtaining  more 
cheaply  than  before  all  commodities  in  the  production  of 
which  her  superiorit}^  was  relatively  less.  The  result,  so  far 
as  foreign  trade  was  concerned,  would  thus  be  exactly  anal- 
ogous to  what  happened  on  the  discovery  of  gold  in  Austra- 
lia. But  I  shall  be  asked  how  as  regards  the  wages  of  labor? 
The  gold  discoveries,  as  we  saw,  had  the  effect  of  raising  the 
rate  of  money  wages  in  Australia  in  proportion  to  the  fall 
in  the  cost  of  money.  Would  a  similar  consequence  follow 
on  the  hypothesis  we  are  now  considering?  Beyond  ques- 
tion, yes ;  that  is  to  say,  as  wages  in  Australia  rose,  measured 
in  the  commodity  of  which  the  cost  had  been  cheapened,  so 
wages  in  England  would,  in  the  supposed  case,  rise,  and  in  a 
corresponding  proportion,  measured  in  the  commodity  similar- 
ly affected.  In  the  one  case  that  commodity  was  gold,  in  the 
other  woolen  goods.  English  laborers,  so  far  as  they  were 
consumers  of  woolen  goods,  would,  in  the  supposed  case,  ob- 
tain that  commodity  more  cheaply;  so  far  as  they  were  con- 
sumers of  foreign  goods,  procured  through  an  exchange  for 
woolens,  would  also  obtain  those  commodities  more  cheaply ; 


CO-ORDINATE  PHENOMENA.  339 

SO  far,  again,  as  they  were  consumers  of  commodities  produced 
in  England  other  than  woolen  goods,  would  gain  nothing  by 
what  had  occurred.  It  may  be  added  that  those  other  com- 
modities of  English  production,  inasmuch  as  they  were  not  af- 
fected by  the  same  cause  which  had  cheapened  English  wool- 
ens, would  be  represented  in  exchange  by  a  larger  quantit}^  of 
the  cheapened  article  than  before,  just  as  the  products  of  Aus- 
tralia were  represented  by  higher  gold  prices  in  proportion  as 
the  cost  of  gold  fell.  To  state  the  result  in  a  single  phrase, 
the  wages  of  English  laborers,  measured  in  icoolen  goods.,  would 
rise  in  proportion  as  the  cost  of  those  goods  had  fallen  ;  in  ex- 
act analogy  with  what  happened  in  Australia.  Here,  then,  we 
find,  in  the  case  of  a  commodity  of  general  consumption,  as  we 
had  before  found  in  the  case  of  gold,  the  course  of  foreign 
trade  and  the  rate  of  wages  intimately  bound  together  through 
the  link  of  a  common  cause  in  the  state  of  productive  indus- 
try. It  is  rare  indeed  that  changes  in  the  cost  of  production 
take  place  on  so  great  a  scale  as  that  realized  or  assumed  in 
our  illustrations;  but  where  such  changes  do  occur,  be  the 
scale  large  or  small,  the  results  which  follow,  though  different 
in  point  of  magnitude,  are  in  character  such  as  I  have  described. 
Every  new  invention,  every  happy  discovery,  that  cheapens 
the  cost  of  producing  particular  commodities,  and  so  alters 
their  comparative  cost,  sets  in  action  forces  which  operate  in 
the  directions  I  have  indicated,  however  slight  and  even  im- 
perceptible may  be  the  actual  results  which  flow  from  each. 

The  real  nature  of  the  connection  between  the  rate  of  wages 
prevailing  in  a  country  and  the  character  and  course  of  its  ex- 
ternal trade  ought  now,  I  think,  to  be  tolerably  clear.  They 
are  co-ordinate  effects  of  a  common  cause,  that  cause  being  the 
degree  and  direction  in  which  a  nation's  industry  happens 
to  be  productive.  "Whatever  be  the  articles  with  respect  to 
which  the  industry  of  a  nation  is  specially  productive,  these 
are  the  articles  which  will  form  the  staple  of  its  external  trade, 


340  WAGES  AXD  FOREIGN  TRADE. 

and,  measured  in  these^  the  wages  of  labor  will  be  high.  If 
wages  are  high,  measured  in  money,  this  will  indicate  either 
rich  mines  of  gold  or  silver,  or  a  high  productiveness  of  indus- 
try in  some  commodities  in  large  demand  abroad  with  which 
gold  or  silver  may  be  purchased  on  favorable  terms.  If  they 
be  high,  measured  in  food,  clothing,  and  other  necessaries  and 
comforts,  we  may  infer  similarly  a  high  productiveness  of  in- 
dustry, direct  or  indirect,  with  regard  to  those  commodities. 
Thus  the  commodities,  whatever  they  are,  measured  in  which 
wages  are  high,  will  either  form  the  staples  of  her  foreign  trade, 
or  will  be  such  as  may  be  obtained  at  small  cost  through  those 
staples  The  notion,  therefore,  which  prevails  both  here  and 
in  the  United  States  that  the  high  rate  of  general  wages  ob- 
taining in  each  country  is  a  hinderance  to  the  extension  of  its 
foreign  trade  must  be  pronounced  to  be  absolutely  without 
foundation.  Supposing  a  fall  in  wages  to  occur  in  either  coun- 
try, the  other  conditions  of  production  remaining  as  at  present, 
and  supposing  the  fall  to  be  general,  this  circumstance  would 
not,  as  I  have  shown,  affect  the  relative  attractiveness  of  the 
different  branches  of  industry  as  investments  for  capital.  Cap- 
ital would,  therefore,  be  distributed  among  them  as  at  present, 
and  nothing  would  occur  to  alter  the  course  of  its  foreign 
trade.  The  sole  result  would  be  a  general  rise  of  profits: 
capitalists  would  gain  what  laborers  had  lost.  A  fall  of  gen- 
eral wages,  on  any  other  assumption,  would  inevitably  imply 
diminished  productiveness  in  some  of  the  great  departments 
of  productive  industry;  and  such  diminished  productiveness 
involving,  as  it  would,  changes  in  the  comparative  cost  of  com- 
modities, would  no  doubt  entail  changes  in  external  commerce. 
But  the  point  to  be  borne  in  mind  is  that  the  latter  result, 
though  coincident  with,  would  not  be  the  effect  of  the  fall  in 
general  wages,  but  that  both  would  be  co-ordinate  effects  of 
the  decline  in  the  productiveness  of  industry;  and  further,  that 
the  changes  in  external  commerce,  occurring  under  the  cir- 


CO-ORDINATE  PHENOMENA.  341 

cumstances  supposed,  would  not  necessarily  be  in  the  direction 
of  extended  trade.  Quite  as  probably  in  either  case,  in  the 
case  of  the  United  States  much  more  probabl}^,  the  movement 
would  involve  a  contraction  of  dealin2;s  with  foreis"n  countries. 
Thus,  supposing  a  general  fall  of  wages  in  the  United  States, 
measured,  let  us  say,  in  gold  and  provisions,  or,  what  comes  to 
the  same  thing,  supposing  money  wages  to  fall,  the  prices  of 
provisions  remaining  as  at  present,  let  us  consider  what  this 
would  imply.  Would  it  not  imply  that  industry  in  the  United 
States  was  less  productive  than  it  now  is  in  procuring  the  com- 
modities in  question  ;  and,  therefore,  more  nearly  on  a  par  than 
at  present,  in  the  case  of  such  products,  with  industry  in  other 
countries?  Would  it  not,  in  a  word,  imply  that  the  compara- 
tive cost  of  producing  commodities  there  and  elsewhere  had 
been  brought  into  closer  approximation,  and  that  consequent- 
ly the  possible  field  for  international  exchange  had  been  nar- 
rowed? The  rate  of  wages  and  the  course  of  foreign  trade 
are  thus  intimately  connected ;  but  that  connection  (except 
within  the  limited  range  within  which  reciprocal  demand  gov- 
erns domestic  values)  is  not  one  of  cause  and  effect,  but  of  co- 
ordinate phenomena  depending  upon  identical  conditions. 


CHAPTER  III. 

INTERNA  TIONAL   VAL  UES. 

§  1.  We  have  now  ascertained  the  circumstances  under 
which  international  trade  arises,  and  the  nature  of  the  advan- 
tages that  flow  from  it.  These  advantages,  as  we  have  seen, 
are  such  as  result  from  a  more  effective  distribution  of  the  pro- 
ductive forces  of  the  world.  Supposing  a  universal  freedom 
of  trade,  it  would  not  indeed  follow  that  every  product  of  in- 
dustry would  be  raised  precisely  in  that  part  of  the  world  in 
which  it  could  be  raised  with  greatest  advantage;  for  this 
would  require  that  population  and  capital  should  be  distributed 
with  no  other  view  than  to  economical  gain.  The  course  of 
population  and  capital,  however,  it  is  needless  to  say,  is  influ- 
enced by  many  other  considerations  as  well;  and  what  inter- 
national trade,  so  far  as  it  is  allowed  free  scope,  accomplishes 
for  mankind  is,  that  the  industry  of  the  world  is  carried  on, 
not  indeed  with  the  utmost  possible  advantage,  but  with  the 
utmost  advantage  practicable,  regard  being  had  to  the  manner 
in  which  the  world  is  peopled  and  to  the  condition  of  its  in- 
habitants. 

Such  is  the  nature  of  the  gain ;  but  here  another  question 
arises:  On  what  principle  is  the  increase  of  wealth  which  re- 
sults shared  among  the  nations  which  co-operate  in  producing 
it?  To  put  the  same  point  in  a  different  form — What  causes 
determine  the  proportions  in  which  trading  nations  exchange 
their  products?  These  proportions  may  conceivably  be  such 
as  to  give  all  the  advantage  to  one  only  of  the  exchanging 
parties,  or  such  as  to  share  it  among  a  few  to  the  exclusion  of 


STATEMEyT  OF  THE  PROBLEM.  343 

the  rest,  or  such,  again,  as  to  distribute  it  in  any  ratio  what- 
ever among  them  all.  According  as  one  result  or  the  other  is 
attained,  will  be  the  quantum  of  advantage  which  each  nation 
derives  from  its  commercial  dealings  with  others.  We  are 
thus  conducted  by  the  course  of  our  investigation  from  the 
doctrine  of  international  trade  to  the  special  problem  of  inter- 
national values. 

§  2.  It  may  be  well,  perhaps,  to  remind  the  reader  that  the 
subject  of  our  present  inquiry  is  normal,  not  market,  values — 
the  proportions  in  which  nations  exchange  their  products  as  a 
rule,  or  when  trade  is  in  a  state  of  equilibrium,  not  those  in 
which  the  exchange  may  take  place  on  a  particular  occasion, 
or  under  the  influence  of  exceptional  conditions.  Now  we 
have  already  seen  that  normal  values  depend  on  one  or  other 
of  two  principles:  where  industrial  competition  prevails,  on 
cost  of  production ;  and  in  the  absence  of  effective  industrial 
competition,  on  reciprocal  demand.  Inasmuch,  however,  as  the 
condition  of  effective  industrial  competition  (in  the  sense  de- 
fined) is  not  satisfied  in  the  intercourse  of  independent  nations, 
it  is  at  once  evident  that  the  ruling  principle  of  international 
values  is  not  cost  of  production,  and  can  only  be  that  other  in- 
fluence which  prevails  in  the  absence  of  effective  competition. 
So  much  is  recognized  in  the  received  text-books  of  Political 
Economy.  But  here  I  must  call  attention  to  an  inconsistency 
in  which  those  text-books  are  involved,  to  which,  indeed,  in- 
cidental reference  has  been  already  made.  It  will  be  remem- 
bered that  in  a  former  portion  of  this  work  I  criticised  at  some 
length  the  received  doctrine  of  Cost  of  Production,  which,  as 
expounded  by  Mr.  Mill  and  others,  is  represented  as  consisting 
in,  and  varying  with,  the  wages  and  profits  of  producers.  I 
stated  then  that  this  conception  of  cost  was  not  reconcilable 
with  the  doctrine  of  international  values  upheld  by  the  same 
authorities,  which  refers  these  phenomena,  not  to  cost  of  pro- 


344  INTERNATIONAL   VALVES. 

duction,  but  to  the  reciprocal  demand  of  exchanging  nations. 
I  now  propose  to  justify  that  criticism  by  showing  that,  re- 
garding cost  of  production  in  the  sense  assigned  to  it,  inter- 
national values  do,  in  point  of  fact,  in  all  cases  correspond  with, 
this  principle ;  in  other  words,  that,  while  they  are  said  not  to 
be  governed  by  cost,  they  nevertheless  invariably  conform  to 
it.  A  simple  illustration  will  enable  me  to  make  good  this 
position. 

Let  us  suppose  two  commodities,  one  the  product  of  English 
industrj^,  the  other  produced  in  the  United  States,  and  selling 
for  the  same  sum  of  money,  say  £1000  each.  These  commod- 
ities will  (cost  of  carriage  being  omitted  on  both  sides)  ex- 
change for  each  other,  and  will,  therefore,  represent  equal 
values  in  international  trade.  This  being  so,  how  stands  the 
case  as  to  their  respective  costs  of  production?  Assuming 
these  to  consist  in  wages  and  profits,  the  answer  must  be  that 
their  costs  of  production  are  equal  also;  for,  as  I  have  else- 
where shown,  the  wages  and  profits  of  producers  are,  where  in- 
dustry is  continuous,  in  eifect  the  outcome  of  the  values  they 
produce.  The  former,  therefore,  must  be  constantly  propor- 
tional to  the  latter;  and  accordingly,  where  the  values  of  com- 
modities are  equal,  as  these  values  resolve  themselves  into 
wages  and  profits,  the  wages  and  profits  of  their  producers — 
that  is  to  say,  according  to  the  view  we  are  now  considering, 
their  costs  of  production — must  be  equal.  Now  it  is  obvious 
that  this  argument  admits  of  being  applied  to  every  instance 
whatever  of  international  exchange;*  and  we  are  thus  con- 
fronted with  this  singular  result,  that,  while  cost  of  production, 
according  to  our  text-books,  has  no  place  in  determining  inter- 
national values,  international  values,  nevertheless,  according  to 
principles  supplied  by  the  same  authorities,  invariably  corre- 

*  It  will  be  seen  that  tiie  case  would  not  be  altered  if,  instead  of  money,  we  take 
any  other  article,  the  subject  of  international  exchange,  for  example  food,  as  the 
measure  of  cost  and  value. 


INCONSISTENT  FOSITIONS.  345 

spond  to  it.  I  must  leave  those  who  accept  both  doctrines  of 
the  received  PoHtical  Economy  to  reconcile  the  two  positions 
as  they  best  can. 

On  the  other  hand,  if  we  take  as  our  conception  of  cost  that 
view  of  it  for  which  I  have  contended,  according  to  which  it 
consists  in  labor  and  abstinence,  the  truth  of  the  accepted  doc- 
trine on  its  negative  side  follows  as  a  matter  of  course.  To 
establish  this  we  need  not  go  beyond  the  illustration  just  given. 
Two  commodities  respectively  of  English  and  American  pro- 
duction, each  worth  £1000,  exchange  for  each  other,  and  there- 
fore represent  equal  values  in  international  trade.  Further,  as 
I  have  just  pointed  out,  their  values  being  equal,  they  consti- 
tute equal  aggregates  of  wages  and  profits  for  the  producers  on 
each  side.  The  American  scale  of  remuneration,  however,  is 
much  more  liberal  than  the  English,  and  the  proceeds  of  those 
equal  values  will  therefore  be  distributed  in  higher  wages  and 
larger  profits  on  one  side  than  on  the  other.  It  follows  that 
they  will  not  be  distributed  in  proportion  to  the  labor  and  ab- 
stinence remunerated  :  in  other  words,  the  costs,  to  which  they 
correspond,  will  not  be  equal.  The  sacrifice  will  be  less  on 
the  American  than  on  the  English  side.  English  and  Ameri- 
can commodities,  therefore,  do  not  exchange  for  each  other  in 
proportion  to  their  costs  of  production,  as  consisting  in  the 
real  sacrifices  undergone  by  the  producers.  The  negative  side 
of  the  received  doctrine  respecting  international  values  is  thus 
found  to  be  true,  but  only  on  the  condition  of  understanding 
cost  of  production  in  the  sense  for  which  I  have  contended. 

§  3.  The  argument  just  stated  brings  into  view  a  principle 
already  more  than  once  referred  to  in  these  pages,  which,  as 
it  will  be  found  to  have  important  bearings  on  some  problems 
of  international  value,  may  conveniently  be  set  forth  with  some 
distinctness  here.  The  principle  to  which  I  refer  is,  that  the 
relative  rates  of  wages  and  profits  in  the  different  branches  of 


346  INTERNATIONAL  VALUES. 

industry  afford  an  indication,  in  an  inverse  sense,  of  the  relation 
in  which  the  exchange  values  of  the  commodities,  proceeding 
from  such  branches  of  industry,  stand  to  their  costs  of  produc- 
tion. It  will  of  course  be  understood  that  I  use  the  term  •'  cost 
of  production "  here  in  the  sense  which  I  hold  to  be  the  right 
one.  Thus,  to  revert  to  a  former  illustration,  supposing  that 
in  the  manufacture  of  scientific  instruments  wages  and  profits 
ranged  considerably  higher  than  in  ordinary  handicraft  trades, 
let  us  say,  carpentry,  the  fact  would  show  that,  in  the  exchange 
of  the  products  of  the  former  for  those  of  the  latter  industry, 
the  sacrifices  involved  in  the  production  of  mathematical  in- 
struments bore  a  smaller  proportion  to  the  values  of  those  in- 
struments than  the  sacrifices  involved  in  producing  common 
tables  and  chairs,  for  example,  bore  to  their  values.  The  cost 
would  be  low  relatively  to  the  value  in  the  trades  in  which 
wages  and  profits  were  high,  high  in  the  trades  in  which  they 
were  low,  while  the  relation  would  be  one  of  equality  where 
the  rates  of  wages  and  profits  were  equal  on  each  side.  We 
are  thus  furnished  with  an  easy  means  of  determining  the  re- 
lation in  which  the  exchange  values  of  any  two  compared  com- 
modities stand  to  their  costs  of  production.  If  the  rates  of 
wages  and  profits  obtained  by  the  respective  producers  of  the 
two  commodities  be  equal — that  is  to  say,  in  proportion  to  the 
sacrifices  undergone — it  is  matter  of  demonstration  that  the 
commodities  in  question  exchange  in  proportion  to  their  costs. 
If  they  are  unequal,  the  contrary  conclusion  not  less  certainly 
follows;  and  further,  the  difference  in  the  relative  rates  of  re- 
muneration will  indicate  the  degree  in  which  the  exchange 
values  of  the  commodities  deviate  from  the  proportion  existing 
between  their  costs  of  production.  But  this  simple  criterion 
may  be  made  simpler  still.  For  practical  purposes,  we  shall 
not  lose  appreciably  in  point  of  accuracy  if,  instead  of  making- 
it  consist  in  wages  and  profits,  we  confine  our  attention  to 
wages  alone.     Profits  form  but  a  small  element  in  the  value 


PRACTICAL  CRITEIUON.  347 

of  most  commodities,  and  the  divergence  of  the  rates  of  profit 
in  different  occupations  and  in  different  countries  is  (owing  to 
the  greater  mobility  of  capital  than  labor)  much  less  consider- 
able than  that  of  the  rates  of  wages.  We  may,  therefore,  with- 
out danger  of  serious  error,  substitute  "wages"  for  "wages 
and  profits,"  and  we  are  at  once  provided  with  an  easy  means 
of  determining  the  relation  of  exchange  value  to  cost  of  pro- 
duction in  all  cases  whatever. 

To  give  now  some  examples  of  the  application  of  our  cri- 
terion to  the  transactions  of  international  trade,  I  find  that,  ac- 
cording to  investigations  made  by  Mr.  Wells,*  the  United 
States  Commissioner,  which  on  the  whole  have  been  confirmed 
by  the  Keports  lately  received  from  our  agents  in  foreign 
countries,  the  relative  rates  of  wages  for  similar  kinds  of  labor 
in  the  leadinsj  manufacturing  industries  in  the  United  States, 
England,  Belgium,  France,  and  Germany  range  nearly  as  fol- 
lows: As  compared  with  England,  wages  in  the  United  States 
are  from  25  to  50  per  cent,  higher ;  as  compared  with  Belgi- 
um, from  48  to  70  per  cent,  higher ;  while,  as  compared  with 
France  and  Germany,  the  difference  rises  to  nearly  100  per 
cent.f  I  need  hardly  say  that  if  the  comparison  were  extend- 
ed so  as   to  include  Oriental  states,  for  example,  India  and 


*  See  his  Eeport  for  1868,  pp.  67-69. 

t  It  is  true  that  the  returns  quoted  represent  the  rates  of  wages  per  day;  and  a 
day's  hibor,  even  in  the  same  occupations,  does  not  always  represent  etjual  exer- 
tion undergone,  since  men  work  liurder  and  longer  in  some  countries  than  in  oth- 
ers. This  consideration,  however,  if  taken  aceoinit  of,  as  no  doubt  it  should  be, 
would  only  have  tlie  effect  of  strengthening  the  grounds  of  the  argument  in  the 
text — at  all  events  so  long  as  tlie  comparison  is  confined  to  the  United  States  and 
Europe;  for  from  the  parliamentary  reports  recently  published  upon  this  subject 
it  appears  to  be  almost  a  rule  that,  comparing  different  countries,  the  laboring  day 
is  long  nearly  in  proportion  as  the  rate  of  wages  is  low.  Thus  it  is  generally 
shorter  in  tlie  United  States  tlian  in  England,  in  England  than  in  Belgium  and 
France,  and  in  Belgium  and  France  than  in  Germany  ;  the  rates  of  Avages  in  these 
several  countries,  as  we  have  seen,  declining  in  a  corresponding  order. 


348  INTERNATIONAL  VALUES. 

China,  the  differences  in  the  scales  of  remuneration  would  be- 
come still  more  striking,  the  remurteration  of  a  day's  labor  in 
the  United  States  being  probably  equivalent  to  that  of  four  or 
five  in  the  latter  countries.  Now  what,  according  to  our  cri- 
terion, do  these  differences  indicate  as  regards  the  terms  of  in- 
ternational exchange  ?  They  indicate  this — in  the  first  place, 
that  the  several  nations  named  do  not  exchange  their  products 
with  the  United  States  in  proportion  to  their  costs  of  produc- 
tion; and,  secondly,  that  the  proportion  in  which  the  exchange 
takes  place  deviates  from  the  principle  of  cost  in  the  degree 
marked  by  the  differences  between  the  rates  of  wages  in  each 
country  and  in  the  United  States;  in  other  words,  our  crite- 
rion shows  us  this — that,  in  the  commercial  dealings  of  those 
several  nations,  the  product  of  a  day's  labor  in  the  United 
States  enables  the  workman  to  command  the  product,  in  round 
numbers,  of  a  day  and  a  third's  labor  in  Great  Britain,  the 
product  of  a  day  and  a  half's  labor  in  Belgium,  the  product 
of  from  one  and  three-quarters  to  nearly  two  days'  labor  in 
France  and  Germany ;  while  it  probably  would  command  the 
product  of  four  or  five  days'  labor  in  China  and  India.  Such, 
or  nearly  such,  are  the  proportions,  measured  by  the  standard 
of  cost,  in  which  the  leading  commercial  nations  of  the  world, 
at  the  present  time,  exchange  their  productions;  and  so  very 
far  is  it  from  being  true  that  international  values,  in  the  actual 
dealings  of  commerce,  correspond  with  that  standard.* 


4.  So  far  as  to  the  negative  side  of  our  argument.     The 


*  The  position  here  contended  for  is  very  clearly,  though  incidentally,  establish- 
ed in  Mr.  Senior's  essay  on  the  "  Cost  of  obtaining  Money,"  and  by  the  applica- 
tion of  the  same  criterion.  Mr.  Senior,  nevertlieless,  held  the  current  doctrine  as 
to  cost  of  production  ;  for  though  defining  it  in  his  treatise  as  consisting  of  "  labor 
and  abstinence,"  heat  once  abandons  tliis  definition,  and  sul)stitutcs  for  it  "wages 
and  profits,"  as  equivalent  and  more  convenient  exi)ressions !  In  the  essay  just 
referred  to  he  speaks  of  the  question  as  one  of  nomenclature. 


INDUSTRIAL  MONOPOLIES.  349 

products  of  trading  nations  do  not  exchange  for  each  other  in 
proportion  to  their  costs  of  production.  There  is  no  reason 
that  they  should  do  so,  inasmuch  as  industrial  competition  is 
not  effective  in  the  intercourse  of  nations;  and  the  evidence 
just  adduced  proves  that  they  do  not  do  so  in  point  of  fact. 
The  principle,  therefore,  which  determines  international  values 
must  be  that  one  which  operates  in  the  absence  of  effective  in- 
dustrial competition,  namely.  Reciprocal  Demand  ;  and  this,  as 
I  have  already  said,  is  the  received  doctrine  of  Political  Econ- 
omy. But  though  Cost  of  Production  is  not  in  this  case  the 
determining  cause,  it  does,  nevertheless,  exercise  an  important 
influence  in  international  trade  by  controlling  the  aberrations 
of  value  which  ^re  possible  under  a  regime  where  monoply  is 
the  presiding  principle.  This,  indeed,  is  implied  in  the  ordi- 
nary expositions  of  the  doctrine ;  but  I  do  not  think  the  fact 
has  hitherto  been  brought  out  with  as  much  distinctness  and 
prominence  as  it  deserves. 

To  aid  toward  this  result,  it  may  be  observed  that  industrial 
monopoly  may  exist  under  various  conditions  involving  a  cor- 
responding variety  in  the  results  which  flow  from  it.  It  may 
exist,  in  the  first  place,  in  an  absolute  form,  as  where  an  indi- 
vidual or  a  nation  possesses  the  exclusive  power  of  producing 
certain  commodities;  or,  secondly,  it  may  be  qualified,  spring- 
ing from  the  possession  of  certain  special  facilities  of  produc- 
tion not  shared  by  others,  as  in  the  case  of  those  peculiarities 
of  soil  and  climate  which  give  an  advantage  to  some  districts 
and  countries  over  others  in  the  production  of  certain  articles, 
which  it  is  still  possible  for  the  latter  to  produce,  though  under 
less  fiivorable  conditions;  while  afrain,  in  commercial  dealings, 
monopoly  ma}^  be  cither  one-sided  or  reciprocal — confined  to 
one  of  the  trading  parties,  or  extending  to  both  with  regard  to 
their  respective  staples.  Examples  of  monopoly  in  all  these 
forms  will  be  found  in  international  trade,  and  the  power  of 
reciprocal  demand  over  value  will  be  greater  or  less,  accord- 


350  INTERNATIONAL  VALUES. 

ing  to  the  form  which  the  monopoly  in  any  given  case  may 
assume. 

For  example,  where  the  monopoly  is  at  once  strict  and  re- 
ciprocal— a  case  not  frequent  in  international  trade,  but  which 
sometimes  does  occur,  as  in  the  traffic  which  takes  place  be- 
tween the  tropical  and  the  frozen  zones,  in  the  exchange,  sup- 
pose, of  spices  for  ice — in  this  case  the  influence  of  reciprocal 
demand  on  value  is  unqualified  and  absolute,  since  under  such 
circumstances  there  is  nothins;  but  the  desires  on  each  side, 
supported  by  such  means  as  are  available  to  give  them  effect, 
to  determine  the  bargain. 

A  more  frequent  and  important  case  is  that  in  which  the 
monopoly  is  strict,  but  one-sided,  or,  if  existing  on  both  sides, 
only  strict  on  one  side,  while  it  is  qualified  on  the  other.  This 
species  of  monopoly  is  largely  exemplified  in  the  trade  between 
tropical  and  temperate  countries,  and  again  in  that  between  the 
gold-producing  districts  of  the  earth  and  the  countries  which 
trade  with  them.  Reciprocal  demand  here  operates,  but  sub- 
ject to  a  limit  on  the  side  of  the  country  which  has  the  power 
of  producing  both  the  commodities,  or  classes  of  commodities, 
forming  the  subject  of  exchange.  To  give  an  example:  in  the 
trade  between  England  and  Australia  (for  simplicity  of  illus- 
tration, I  suppose  all  other  gold  countries  to  be  excluded  from 
the  commerce)  there  is  no  limit  to  the  possible  rise  which 
might  take  place  in  the  value  of  gold— to  the  possible  quan- 
tity, that  is,  of  her  products  which  England  might  give  in  ex- 
change for  gold — save  in  the  desire  of  England  for  gold  and 
her  ability  to  pay  for  it;  but,  on  the  other  hand,  the  fall  in  the 
value  of  gold — the  price  in  gold  which  Australia  will  consent 
to  pay  us  for  our  goods — has  a  very  definite  limit  short  of 
Australian  needs  for  what  we  produce — the  limit,  namely,  set 
by  the  cost  at  which  Australia  can  produce  those  articles  for 
herself  So  soon  as  prices  in  gold  have  reached  the  point  at 
which  Australia  can  satisfy  her  requirements  more  easily  by 


INDUSTRIAL  MONOPOLIES.  351 

the  direct  production  of  the  commodity  than  by  producing 
gold  to  be  exchanged  for  it,  the  fall  of  gold,  in  relation  to  that 
commodity,  has  reached  its  limit,  and  no  increasing  require- 
ments on  the  Australian  side  will  have  any  further  effect  on  its 
international  value. 

But  again,  there  is  a  third  case,  the  most  frequent  and  im- 
portant of  all  in  international  trade — that,  namely,  in  which 
monopoly  exists  on  both  sides,  but  is  qualified  on  both.  This 
occurs  when  each  of  the  trading  nations  is  in  the  possession, 
not  of  an  exclusive  power  of  production,  but  of  a  comparative 
superiority  (in  the  sense  in  which  this  phrase  has  been  explain- 
ed) with  reference  to  the  articles  which  constitute  its  staples 
in  the  trade.  Here  reciprocal  demand  still  determines  inter- 
national values,  but  the  range  of  its  influence  finds  a  limit  on 
both  sides.  This,  I  say,  is  the  most  frequent  and  important 
case  of  all  in  international  commerce.  It  is  largely  exemplified 
in  the  trade  between  the  various  countries  of  Europe,  and  still 
more  strikingly  in  that  between  Europe  and  North  America. 
In  the  exchange,  for  example,  of  wheat  for  cotton  yarn,  or  of 
timber  for  iron,  each  of  the  exchanging  countries  has  a  compar- 
ative advantage  in  its  own  staple;  and  any  terms  of  interna- 
tional exchano'e  which  are  within  the  limits  of  that  advantage 
will  imply  a  gain,  though  not  necessarily  an  equal  gain,  for 
both  countries.  Within  these  limits,  therefore,  reciprocal  de- 
mand will  operate  to  determine  what  the  precise  terms  of  the 
exchange  shall  be;  but  beyond  those  limits  on  either  side  in- 
ternational values  can  not  permanently  remain,  since  the  mo- 
ment the  limits  thus  set  are  transcended  the  resources  of  the 
country  so  placed  at  disadvantage  can  be  brought  into  requisi- 
tion, and  the  motive  for  the  trade  ceases. 

These  limitations  on  the  action  of  reciprocal  demand  in  in- 
ternational exchange  are  such  as  would  exist  if  each  countr}^ 
only  traded  with  one  other.  But  when  we  take  into  account 
the  actual  state  of  things,  and  consider  that  the  external  trade 


352  INTEBNATIOXAL  VALUES. 

of  each  country  comprises  dealings  with  many  others,  we  find 
that  the  limits  to  the  deviations  of  value  under  the  action  of 
demand  are  considerably  narrower  than  we  might  at  first  have 
supposed.  For  example,  reverting  to  the  illustration  already 
given  of  the  trade  between  certain  parts  of  the  United  States 
and  Barbados,  it  is  probable  that  the  difference  in  the  compar- 
ative costs  of  sugar  and  flour  in  those  two  countries  is  very  con- 
siderable ;  and  that  consequently  a  very  considerable  latitude 
would  exist  for  possible  variations  in  the  terms  on  which  the 
staples  are  exchanged  under  the  influence  of  American  demand 
for  sugar  and  Barbadian  demand  for  flour.  But  before  the  ex- 
treme limit  could  be  reached  on  either  side,  the  resources  of 
other  countries  would  come  into  requisition.  Any  considera- 
ble advance  of  sugar  in  relation  to  flour,  or  of  flour  in  relation 
to  sugar,  or,  let  us  say  (since  money  is  the  medium  through 
which  the  transactions  would  be  efiected),  any  considerable  ad- 
vance of  United  States  prices  in  relation  to  prices  in  Barba- 
dos, or  the  reverse,  would  bring  other  countries  into  the  field, 
and  make  their  resources  available  for  controlling  the  advan- 
cing price,  on  whichever  side  it  might  happen  to  be.  The  ce- 
real capacities  of  Canada  and  South  America  would  control  the 
aberrations  on  the  side  favorable  to  the  United  States;  while 
those  on  the  side  favorable  to  Barbados  would  be  kept  in  check 
by  the  competition  of  the  sugar  producers  of  Jamaica  and  Cuba. 
It  thus  appears  that  it  is  not  the  difference  in  the  comparative 
costs  of  production  in  each  pair  of  trading  countries  that  fixes 
the  limits  to  the  possible  variations  of  international  values  un- 
der the  influence  of  reciprocal  demand,  but,  among  all  coun- 
tries mutually  accessible  for  commercial  intercourse,  the  differ- 
ence of  comparative  costs,  as  it  exists  in  the  particular  coun- 
tries in  which  that  difference  is  least.  The  limits  of  variation 
are  thus  set  by  the  minimum,  not  by  the  maximum,  difference 
in  comparative  cost  among  the  various  exchanging  and  com- 
peting countries. 


CONTROLLED  BY  COST.  '        353 

Such  is  the  nature  of  th6  influence  exercised  respectively  by 
reciprocal  demand  and  by  cost  of  production  in  international 
exchange.  The  former  determines;  the  latter  only  controls. 
The  distinction  between  these  two  functions  will  be  made 
clear  by  comparing  the  action  of  cost,  as  just  described,  with 
its  action  in  domestic  trade.  In  domestic  trade  cost  of  pro- 
duction, within  the  limits  of  effective  competition,  not  merely 
controls,  but  determines  normal  value — not  merely  sets.limits 
to  the  variations,  but  establishes  a  point  toward  which  they 
converge.  It  has  accordingly  been  aptly  represented  by  Adam 
Smith  as  a  central  point  about  which  market  values  move,  and 
toward  which  they  gravitate.  In  the  instance  of  international 
trade,  the  correct  figure  by  which  to  describe  its  action  would 
be,  not  a  point  about  which  values  move,  but  a  circle  within 
which  they  move.  Accordingly,  it  must  be  carefully  remark- 
ed that,  even  in  those  cases  in  which  its  influence  is  operative, 
there  is  no  correspondence — at  all  events  no  necessary  corre- 
spondence— between  values  and  costs.  The  examples  I  have 
already  given  of  the  relative  rates  of  remuneration  prevailing 
in  different  countries  sufficiently  establish  this  point.j 

§  5.  As  regards  the  mode  of  operation  by  which  interna- 
tional values  are  determined  under  the  action  of  international 
demand,  I  do  not  propose  to  attempt  any  detailed  illustration 
here.  The  subject  will  be  found  ver}^  f^^H}^  treated  in  text- 
books in  every  one's  hands.  There  is  one  point,  however,  on 
which  it  seems  to  me  the  correct  doctrine  has  not  been  quite 
clearly  laid  down,  and  on  this  it  may  be  well  here  to  attempt 
a  few  remarks. 

The  transactions  of  international  trade  are  of  course  carried 
on  through  the  medium  of  money — that  is  to  say,  of  gold  and 
silver;  and  Eicardo  has  shown  that  the  effect  of  the  play  of 
international  demand  is  to  produce  such  a  distribution  of  the 
precious  metals,  and  such  a  relative  scale  of  prices  in  commer- 

23 


354  INTERNATIONAL  VALUES. 

cial  countries,  as  on  the  whole  to  cause  the  trade  of  each  coun- 
try with  all  others  to  be  carried  on  upon  the  same  terms  as  it 
would  be  if  conducted  by  barter.  When  this  state  of  things  is 
realized,  the  precious  metals  (so  far  as  they  are  employed  as  a 
medium  of  exchange,  and  not  as  a  staple  of  commerce)  cease 
to  pass  from  country  to  country ;  and  international  trade  is  in 
a  condition  of  equilibrium.*  The  point  I  desire  now  to  call 
attention  to  is  the  condition  of  international  demand  which  is- 
sues in  this  result. 

The  solution  commonly  given  of  this  problem  is  that  com- 
mercial equilibrium  is  attained  when  the  value  of  the  imports 
into  a  country,  measured  in  gold  or  silver,  the  universal  mon- 
ey of  commerce,  is  equal  to  the  value  of  the  exports  from  that 
country.  In  the  language  of  Mr.  Mill,  "the  produce  of  a  coun- 
try exchanges  for  the  produce  of  other  countries  at  such  values 
as  are  required  in  order  that  the  whole  of  her  exports  may 
exactly  pay  for  the  whole  of  her  imports."f  Now,  as  a  mat- 
ter of  fact,  it  very  rarely  happens  that  the  whole  exports  of 
a  country,  even  if  we  take  an  average  of  many  years,  exactly 
pay  for  the  whole  of  its  imports;  nor  can  it  be  truly  said  that 
there  is  any  tendency  in  the  dealings  of  nations  toward  this 
result.     The  evidence  of  this  is  to  be  found  in  any  statistical 

*  The  equilibrium  of  commerce  may,  accordingly,  be  defined  for  all  countries, 
not  being  themselves  jjroducers  of  the  precious  metals,  as  that  state  of  trade  which 
results  in  maintaining  the  real  exchanges,  one  year  with  another,  at  par.  Where 
it  happens,  however,  that  a  country  produces  gold  or  silver  for  export,  a  premium 
on  the  exchange  is,  in  this  case,  the  normal  state  of  things.  During  the  last  twen- 
ty years  the  commercial  equilibrium  has  been  extensively  disturbed  in  most  coun- 
tries— the  necessary  consequence  of  the  large  additions  now  being  made  to  our 
stock  of  money. 

t  In  a  later  passage  at  the  end  of  the  chapter  on  the  "Distribution  of  the  Pre- 
cious Metals,"  Mr.  Mill  recognizes  that  there  are  other  causes  th.an  commercial 
which  affect  the  relation  of  imports  and  exports,  and  the  equilibrium  of  commerce. 
But  the  recognition,  only  introduced  at  the  end  of  the  discussion,  and  in  quite  a 
summary  way,  seems  scarcely  adequate  to  the  requirements  of  the  (Jase. 


COMMERCIAL  EQUILIBRIUM.  355 

table  showing  the  exports  and  imports  of  different  countries. 
An  examination  of  such  a  table  will  show  that  there  are  coun- 
tries which  constantly,  and  as  a  normal  state  of  things,  import 
largely  in  excess  of  their  exportations,  while  there  are  others 
of  which  the  exports  as  regularly  exceed  the  imports.  In 
other  cases,  again,  the  imports  will  be  found  for  a  time  to  have 
exceeded  the  exports,  after  which  the  relation  is  inverted,  and 
the  exports  begin  to  outstrip  the  imports.  With  such  facts 
before  us  we  can  not  easily  admit  that  an  equalization  of  im- 
ports and  exports  is  the  necessary  condition  of  a  staple  trade ; 
and  this  being  so,  we  have  to  consider  what  that  condition  is. 

To  elucidate  this,  a  better  example  can  not  be  found  than 
the  external  trade  of  the  United  Kingdom.  I  take  it  as  set 
forth  in  the  Statistical  Abstract  for  the  years  between  1856 
and  1870  inclusive.  During  the  whole  of  this  time  the  im- 
ports remained  constantly  and  largely  in  excess  of  the  exports. 
At  the  commencement  of  the  period  the  exports  stood  at,  in 
round' numbers,  £115,000,000,  the  imports  at  £172,000,000; 
the  imports  thus  exceeding  the  exports  by  the  amount  of 
£57,000,000  sterling.  At  the  end,  that  is  to  say  in  the  year 
1870,  the  exports  were  £199,000,000,  while  the  imports  reach- 
ed £303,000,000,  showing  a  difference  in  favor  of  imports  of 
£104,000,000;  and  the  returns  of  the  intervening  years  ex- 
hibit a  constant  predominance  on  the  sanie  side,  and  nearly  in 
the  same  proportion.  The  question  arises,  How  has  this  large 
excess  of  imports  been  paid  for?  The  answer  is,  to  a  small 
extent  it  has  been  paid  for  in  services,  principally  in  the  serv- 
ices of  our  mercantile  marine,  performing  as  it  does  a  large 
proportion  of  the  carrying  trade  of  the  world,  but,  in  the  main, 
it  has  not  been  paid  for  at  all.  It  came  to  us  from  foreign  na- 
tions, as  all  our  imports  have  come,  in  the  ordinary  course  of 
trade,  but  the  proceeds  on  sale  have  never  been  returned  in 
any  form  to  those  from  whom  the  goods  came :  they  were 
applied  instead  to  the  discharge  of  debts  owing  to  us — debts, 


356  INTERNATIONAL  VALUES. 

however,  incurred  on  account  of  transactions  wholly  apart 
from  our  export  trade.  In  point  of  fact,  what  has  happened 
has  been  this:  Great  Britain  has  for  a  long  time  occupied  the 
position  of  a  lender  of  capital  to  other  nations;  she  has  invest- 
ed her  capital  freely  in  her  own  colonies ;  she  has  lent  money 
to  many  countries  for  industrial  undertakings,  and  has  been  a 
large  purchaser  of  foreign  stocks.  On  all  these  accounts  for- 
eign nations,  including  under -this  term  our  own  colonies,  have 
become  her  debtors,  and,  in  discharge  of  their  obligations  ac- 
cruing in  the  form  of  profits,  interest,  and  dividends  on  stock, 
are  compelled  to  send  her,  year  by  year,  value  to  a  large  ex- 
tent for  which  no  payment  in  return  is  required.  Here  we 
find  the  explanation  of  the  large  normal  excess  of  our  imports 
over  our  exports.  But  an  examination  of  the  facts  will  fur- 
ther evince  that  tiiis  excess  is,  in  the  case  of  Great  Britain, 
the  indispensable  condition  of  commercial  equilibrium;  that 
under  any  other  circumstances  the  present  relation  of  prices 
between  her  and  foreign  countries,  or,  what  amounts  to  the 
same  thing,  the  present  proportion  in  which  they  exchange 
their  products,  could  not  be  maintained.  This  will  be  evident 
if  we  consider  what  would  be  the  consequence  of  an  equali- 
ty of  value  being  established  between  British  imports  and  ex- 
ports, the  financial  relations  of  the  country  with  the  rest  of 
the  world  being  such  as  they  are.  Foreign  nations  would 
have  to  pay  us,  as  now,  for  what  we  export,  and  for  this,  bills 
drawn  against  the  goods  they  send  us,  that  is,  our  imports, 
would  exactly  suffice.  But  they  owe  us  besides,  say  a  hun- 
dred millions,  on  account  of  dividends,  interest,  and  other  obli- 
gation.s.  How  are  they  to  discharge  this  latter  liability?  It 
is  evident  they  could  do  so  only  in  one  way,  namely,  by  send- 
ing us  gold  to  the  value  of  the  amount  in  question.  An  ex- 
tensive influx  of  gold  from  foreign  countries  to  Great  Britain 
would  thus  set  in,  and — so  long  as  the  state  of  international 
prices,  and  therefore  of  international  demand,  remained  at  the 


COMMERCIAL  EQUILIBRIUM.  357 

point  which  had  produced  the  equality  of  imports  and  exports 
—  would  continue.  It  is  plain,  however,  that  international 
prices  and  demand  could  not  long  remain  steady  under  the  cir- 
cumstances supposed.  The  large  and  continued  influx  of  gold 
into  England  would  necessarily  be  attended  by  a  rise  of  prices 
here,  and  a  fjill  in  foreign  countries;  and  this  would  quickly 
lead  to  a  change  in  the  demand  of  England  and  of  foreign 
countries  for  their  respective  products.  England,  in  possession 
of  enlarged  monetary  resources,  and  finding  prices  falling 
abroad,  would  extend  her  demand  for  foreign  commodities ; 
while,  for  precisely  opposite  reasons,  foreign  countries  would 
curtjiil  their  demand  for  the  commodities  of  England.  En- 
glish imports  would  thus  increase,  and  English  exports  dimin- 
ish; and  this  would  go  on,  year  by  year,  so  long  as  gold  con- 
tinued to  flow.  But  the  question  arises  at  what  point  would 
the  process  terminate,  and  trade  find  its  equilibrium?  The 
answer  is :  precisely  when  the  excess  of  imports  over  exports 
had  attained  its  present  dimensions — when  the  former,  that  is 
to  say,  had  exceeded  the  latter  by  a  hundred  millions  sterling; 
for  it  would  only  be  then  that  foreign  countries  could  discharge 
all  their  liabilities  to  us  without  remitting  gold.  Gold  would, 
therefore,  at  this  point  cease  to  flow,  and  prices  would  remain 
at  the  level  they  had  reached.  In  a  word,  the  trade  between 
England  and  the  world  would  once  more  have  attained  equi- 
librium. 

And  now  we  are  enabled  to  answer  the  question  propound- 
ed a  few  pages  back.  The  answer  may  be  formulated  thus: 
The  state  of  international  demand  which  results  in  commercial 
equilibrium  is  realized  when  the  reciprocal  demand  of  trading 
countries  produces  such  a  relation  of  imports  and  exports 
among  them  as  enables  each  country  by  means  of  her  exports 
to  discharge  all  her  foreign  liabilities — a  position  from  which 
the  following  corollary  may  be  deduced,  that  all  payments,  due 
from  one  eountr}^  to  another  or  to  other  countries  on  other  ac- 


358  INTEBNATIOXAL  VALUES. 

counts  than  that  of  imports,  of  a  permanent  character — for  ex- 
ample, an  annual  tribute,  interest  on  borrowed  capital,  divi- 
dends on  stock,  and  so  forth  —  and  in  excess  of  similar  pay- 
ments due  from  these  latter  to  the  former,  will  be  I'epresented 
in  the  foreign  trade  of  that  country  by  an  excess  of  exports 
over  imports;  while,  conversely,  an  excess  of  paj^ments  of  this 
character  to  be  received  over  payments  due  will  find  its  com- 
mercial expression  in  an  excess  of  imports  over  exports.  This 
is,  in  truth,  merely  to  say  that  the  foreign  trade  of  each  coun- 
try will  adapt  itself  to  the  pecuniary  requirements  of  that 
country  in  relation  to  the  countries  with  which  it  trades.  If  a 
country  has  been  a  large  borrower  of  foreign  capital,  and  so  is 
indebted  to  foreign  nations  in  annual  interest,  or  if,  again,  her 
people  are  much  given  to  traveling  in  foreign  countries,  and  so 
have  occasion  to  remit  annually  large  sums  abroad  for  which 
no  return  is  required,  under  such  circumstances  her  exports 
will  tend  to  exceed  her  imports;  while,  under  an  opposite  state 
of  things,  that  is  to  say,  if  a  countrj^  has  been  a  large  foreign 
lender,  or  if  it  be  the  scene  of  travel  for  the  inhabitants  of  oth- 
er countries — the  imports  will  tend  to  exceed  the  exports.  With 
man}'-,  indeed  with  most  countries,  it  will  happen  that  they  are 
debtors  to  foreign  countries  upon  one  score  and  creditors  upon 
another;  and  the  state  of  the  import  and  export  trade  will  be 
such  as  the  state  of  the  balance  in  each  case  may  prescribe. 
For  example,  Grreat  Britain  makes  large  remittances  abroad 
every  year  to  meet  the  expenses  of  Englishmen  residing  or 
traveling  in  foreign  countries.  This  would  tend  to  make  her 
exports  exceed  her  imports,  and  would  actually  produce  this 
effect,  if  it  were  not  that  the  debts  due  on  this  account  to  for- 
eign nations  are  more  than  balanced  by  larger  debts  due  on 
other  accounts  by  them  to  us.  The  balance  of  such  non-com- 
mercial payments  being,  on  the  whole,  largely  in  favor  of  Great 
Britain,  it  results,  as  we  have  seen,  that  her  imports  are,  as  a 
rule,  largely  in  excess  of  her  exports.     An  illustration  of  the 


COMMERCIAL  EQUILIBRIUM.  359 

same  principle  in  an  opposite  sense  is  afforded  by  the  foreign 
trade  of  the  United  States  previous  to  1860.  As  all  the  world 
knows,  the  people  of  the  United  States  had  long  been,  as  they 
are  still,  much  addicted  to  foreign  travel :  they  had  also  for  a 
long  time  been  extensive  borrowers  in  European  money  mar- 
kets. Both  these  practices  combined  to  place  them  under  the 
necessity  of  remitting  annually  large  sums  to  Europe  over  and 
above  what  they  owed  on  commercial  account;  and  this  obli- 
gation was  discharged  in  the  only  way,  in  the  long  run,  pos- 
sible, namely,  through  the  medium  of  United  States  products 
exported.  Accordingly,  if  we  turn  to  the  Keports  on  the  ex- 
ternal trade  of  the  United  States  for  the  period  previous  to 
1860,  we  find,  as  the  normal  state  of  things  in  that  trade,  a 
pretty  steady  excess  of  exports  over  imports — an  excess  which 
in  her  dealings  with  Europe  assumes  very  large  proportions.* 

§  6.  The  foregoing  examples  show  the  effects  of  internation- 
al lending  and  borrowing  on  the  external  trade  of  nations  aftev 
these  practices  have  issued  in  monetary  relations  of  a  defini- 
tive kind.  At  the  commencement,  however,  and  for  so  long- 
as  the  process  of  incurring  debt  is  still  in  actual  operation,  the 
effect  of  such  practices  on  the  foreign  trade  of  a  country  is  ex- 
actly the  reverse  of  that  which  is  subsequently  realized.  The 
nations  which  have  engaged  to  lend  are,  during  this  period, 
those  which  have  pecuniary  obligations  to  discharge ;  the  na- 

*  The  total  excess  of  exports  over  imports  on  the  aggregate  external  trade  of 
the  United  States  in  tlie  ten  years  from  1851  to  18G0  (inclusive)  was  60,200,000  dol- 
lars, that  is  to  say,  an  ainiual  average  of  about  6,020,000  dollars;  but  the  excess 
of  that  portion  of  it  whicli  was  carried  on  with  Europe  was  immensely  greater. 
The  excess  of  exports  over  imports,  for  example,  in  the  trade  with  Great  Britain 
for  the  single  year  1860,  amounted  to  .57,600,000  dollars.  This  large  excess, 
howevei-,  was  compensated  by  an  excess  the  other  way  in  her  trade  with  several 
countries,  chiefly  American,  in  reference  to  whi<:h  she  holds  much  the  same  posi- 
tion financially  which  Great  Britain  holds  toward  her.  (See  "Wells's  Essay:"' 
"Cobden  Club  Essays,"  pp.  513  and  515.) 


360  INTERNATIONAL  VALUES. 

tions  which  borrow,  those  which  are  entitled  to  receive  pay- 
ments in  excess  of  what  is  due  to  them  on  their  ordinary  trade; 
and  for  a  time  the  external  trade  of  both  tends  to  adapt  itself 
to  this  state  of  things.  The  subject  is  perhaps  of  sufficient  im- 
portance to  deserve  some  detailed  illustration. 

Let  us,  then,  suppose  an  industrial  colony,  starting  on  its 
career,  to  become  a  borrower  of  capital  from  its  mother-coun- 
try ;  and,  for  simplicity  of  illustration,  we  will  assume  that 
neither  is  a  producer  of  the  precious  metals,  which,  therefore, 
would  only  pass  between  them  in  discharge  of  pecuniary  debts. 
The  amount  which  the  mother-country  undertakes  to  lend,  and 
the  colony  to  receive,  we  will  set  down  at  one  million  sterling 
annually.  This  being  the  position  of  affairs,  it  becomes  neces- 
sary that  the  sum  to  be  lent  should  be  remitted  each  year  from 
the  mother-country  to  the  colony,  and  this,  it  is  manifest,  can 
only  be  done,. either  by  a  remittance  of  gold  to  the  amount  re- 
quired, or  by  an  exportation,  in  addition  to  that  ordinarily 
leaking  place,  of  commodities  to  the  same  value,  or  by  a  com- 
bination of  both  these  methods.  If  the  colony  is  content  to 
take  the  entire  amount,  or  any  portion  of  it,  in  commodities, 
this  would  imply  a  corresponding  increase  in  colonial  import« 
over  colonial  exports  ;  for  it  would  only  be  in  the  event  of  the 
increased  importation  being  unbalanced  by  exports  from  the 
colony  to  the  mother-country  that  the  proceeds  arising  from  it 
would  be  available  for  the  mother-country  in  discharge  of  the 
loan,  and  there  would  obviously  be  nothing  in  what  had  oc- 
curred to  lead  the  latter  to  increase  her  demand  for  colonial 
products.  But  it  is  probable  that  at  least  a  portion  of  the  loan 
would  be  sent  in  gold;  and  this  would  operate  indirectly  to-, 
ward  the  same  result.  For  the  flow  of  gold  into  the  colony 
year  by  year  would  necessarily  raise  colonial  prices,  while  it 
would  tend  in  the  opposite  direction  in  the  mother-country; 
and  this,  through  a  play  of  forces  I  have  already  more  than 
once  described,  would  be  followed  by  an  increase  of  colonial 


LENDING  AND  BORROWING.  361 

importations,  and  a  corresponding  decline  in  the  exportation 
of  colonial  products — a  process  which  would  manifestly  con- 
tinue, until  at  length  the  excess  of  commodities  sent  from  the 
mother-country  to  the  colony  over  those  received  from  thence 
would  enable  the  former  to  pay  the  whole  annual  loan  by 
means  of  her  commodities  alone.  At  this  point  the  trade  be- 
tween them  would  be  in  equilibrio;  the  exportations  from  the 
mother-country  having  become  sufficient  to  enable  her  to  dis- 
charge by  this  means  all  her  liabilities  to  the  colony.  Up  to 
this  stage,  then,  the  effect  of  foreign  borrowing  on  the  colony 
would,  so  far  as  we  have  yet  traced  it,  tend  toward  an  excess 
in  her  importations  from  the  mother-country  over  her  expor- 
tations thither.  This  would  be  the  initial  effect*  But  dur- 
ing the  continuance  of  the  process  just  described,  the  grounds 
of  an  opposite  state  of  things  would  be  steadily  developed. 
With  every  million  sterling  annually  remitted,  the  colony 
would  become  indebted  to  the  mother-country  for  the  interest 
on  the  amount.  Supposing  the  rate  of  interest  to  be  five  per- 
cent, per  annum,  at  the  end  of  the  first  year  the  debt  of  the 
colony  to  the  mother-country  would  be  £50,000:  consequent- 
ly, in  making  her  next  remittance  on  account  of  capital,  the 
mother-country  would  only  need  to  send  value  to  the  amount, 
whether  in  commodities  or  gold,  of  £950,000.  In  the  follow- 
ing year,  the  colony  would  owe  on  account  of  interest  £100,000, 
which,  still  supposing  the  same  amount  of  capital  to  be  lent, 
would  reduce  the  liabilities  of  the  mother  -  country  on  this 
score  to  £900,000,  and  this  process  of  gradual  diminution  of 
the  mother-countr3^'s  extra  commercial  liabilities  to  the  colony 
would,  at  the  end  of  twenty  years,  issue  in  this  result,  that  the 
sum  due  by  the  colon}''  on  account  of  interest  would  equal  the 

*  If  the  reader  desires  to  verify  the  soundness  of  the  position  thns  far,  he  has 
only  to  turn  to  the  statistics  of  the  exterivil  trade  of  some  of  tlie  leading  colonies 
of  Great  Britain,  in  which  the  imports  will  be  found  steadily  and  systematically  to 
exceed  the  exports. 


362  INTERNATIONAL  VALUES. 

entire  amount  of  the  annual  loan.  What  would  be  the  efifect 
on  the  external  trade  of  the  colony  of  this  growing  indebted- 
ness to  the  mother-country  ?  Manifestly  to  neutralize  that  pro- 
duced by  the  operation  of  the  influences  developed  in  the  ear- 
Iv  stages  of  these  transactions.  The  obligation  of  the  mother- 
country  to  remit  value  to  the  colony,  in  addition  to  what  she 
owed  on  account  of  goods  imported  thence,  gave  an  impulse 
to  her  export  trade,  and  caused  the  importations  of  the  colony 
to  exceed  her  exportations.  The  obligation  of  the  colony  to 
discharge  its  growing  liability  to  the  mother-country  would 
now,  year  by  year,  operate  to  reduce  the  excess,  until  at  length 
the  liabilities  incident  to  the  loans  on  each  side  balancing  each 
other,  the  equilibrium  of  trade  would  be  found  in  such  a  rela- 
tion of  exports  and  imports  as  would  balance  their  remaining  ob- 
ligations— on  the  supposition  that  these  latter  should  consist  ex- 
clusively of  commercial  debts,  then  in  an  equality  of  imports  and 
exports.  This  state  of  things,  however,  would  be  but  momentary. 
We  have  supposed  the  colony  to  have  continued  borrowing 
at  the  rate  of  £1,000,000  sterling  annually  for  twent}^  years. 
At  this  stage,  let  us  make  the  supposition  that  she  suddenly 
ceases  to  borrow,  and  observe  what,  on  this  hypothesis,  would 
be  her  financial  position  in  relation  to  the  mother-country.  In 
the  first  place,  she  would  be  bound  to  pay  £1,000,000  sterling 
annually  on  account  of  interest;  but,  no  longer  receiving  the 
proceeds  of  the  loan  as  formerly,  she  could  not  set  off  one  obli- 
gation against  the  other.  It  would,  therefore,  be  necessary  for 
her  to  remit  value  to  the  amount  required — in  other  words, 
her  position  relatively  to  the  mother-country  at  this  stage  of 
affairs  would  be  financially  identical  with  that  of  the  mother- 
country  toward  her  at  the  outset,  with  this  difference,  that  no 
new  indebtedness  would  be  growing  up  on  the  side  of  the 
mother-country  to  neutralize  the  permanent  obligations  incur- 
red by  the  colony.  The  financial  conditions  of  the  case  be- 
ing thus  changed,  the  external  commerce  of  the  two  countries 


LENDING  AND  BORROWING.  363 

would  adapt  itself  to  the  altered  state  of  their  reciprocal  liabil- 
ities. Gold  would  once  again  begin  to  flow,  but  the  tide  would 
this  time  be  directed  from  the  colony  to  the  mother-country, 
and  it  would  be  followed  by  a  series  of  effects  similar  in  char- 
acter, though  opposite  in  direction,  to  what  we  have  already 
traced.  Year  by  year  the  exports  from  the  colony  to  the 
mother-country  would  exceed  its  imports  thence,  until  at  length 
the  excess  became  sufficient  to  enable  the  former  to  discharge 
its  financial  liability  in  the  products  of  its  own  industry.  The 
efflux  of  gold  would  at  this  point  cease,  and  the  trade  between 
the  two  countries  would  be  in  equilihrio  once  more. 

We  may  make  yet  another  supposition.  The  colony,  in- 
stead of  suddenly  ceasing  to  borrow  at  the  end  of  the  twentieth 
year,  might  continue  her  borrowings  on  the  former  scale  of 
£1,000,000  annually.  On  this  supposition,  her  debt  to  the 
mother-country,  on  account  of  interest,  at  the  end  of  the  twen- 
ty-first year  would  be  £1,050,000 ;  but  £1,000,000  of  this  could 
now  be  set  off  against  the  annual  loan.  In  other  words,  the 
net  balance  due  to  the  mother-country  would  be  £50,000;  but, 
on  the  supposition  that  the  borrowing  continued,  this  balance 
would  grow  year  by  year  in  arithmetical  proportion,  and  would 
act  upon  her  external  trade,  in  proportion  to  its  amount,  in  the 
manner  already  shown.  In  course  of  time  we  may  assume 
that,  as  wealth  increased  in  the  colony,  she  would  have  less 
need  of  foreign  capital,  and  would  borrow  less  or  not  at  all, 
but  she  would  still  be  liable  to  send  abroad  value  in  excess  of 
her  commercial  obligations  to  the  amount  of  the  interest  due 
on  all  debts  previously  incurred.  The  normal  state  of  the  ex- 
ternal trade  of  the  colony  would,  therefore,  under  the  circum- 
stances supposed,  be  one  in  which  her  exports  largely  exceed- 
ed her  imports;  and  such  it  would  continue  to  be  until  either 
the  original  debt  was  paid  off,  or  the  colony  herself  had  be- 
come a  lender,  and  by  this  means  imposed  a  similar  tribute 
upon  other' countries 


364  INTERNATIONAL  VALUES. 

§  7.  Such  is  the  nature  of  the  influences,  immediate  and  re- 
mote, exerted  on  the  external  trade  of  countries  by  the  practice 
of  foreign  borrowing.  In  order  to  render  the  principle  clear, 
it  was  necessarj',  in  the  first  place,  to  exhibit  its  operation  un- 
der very  simple  conditions;  and  I,  therefore,  had  recourse  to  a 
hypothetical  case.  But  so  much,  it  is  hoped,  having  now  been 
accomplished,  it  may  be  well  to  turn  from  our  imaginary  moth- 
er-country and  colony  to  an  actual  instance  of  international 
lending  and  borrowing  on  a  vast  scale.  During  the  last  thir- 
teen years  the  financial  transactions  of  the  United  States  with 
Europe  have  far  exceeded  all  former  examples  of  the  same 
kind,  and  the  effects  which  they  have  produced,  both  on  her 
external  trade  up  to  the  present  time,  and  still  more  on  her 
commercial  and  financial  position  with  reference  to  the  future, 
have  been  of  a  magnitude  correspondingly  great.  As  furnish- 
ing, therefore,  a  striking  practical  illustration  of  the  principles 
W'C  have  been  considering,  and  in  particular  of  the  modes  in 
which  international  settlements  on  a  great  scale  are  effected, 
it  will,  I  think,  be  profitable  to  consider  here  in  some  detail 
the  character  and  scope  of  those  transactions. 

It  has  been  already  seen  that  previous  to  1860  the  normal 
condition  of  the  external  trade  of  the  United  States  was  one 
in  which  the  exports  steadily  exceeded  the  imports,  this  being 
the  natural  commercial  outcome  from  the  state  of  her  finan- 
cial relations  with  Europe.  But  the  advent  of  the  Civil  War 
brought  with  it  a  series  of  events,  each  of  potent  influence,  and 
which  in  their  combination  have  sufficed  to  sliake  American 
trade  to  its  centre,  and  to  render  the  financial  position  of  the 
Union  in  presence  of  Europe  unprecedented  and  critical  in  the 
extreme.  Of  these  events  the  most  important  were  (1),  the 
enactment  of  the  Morrill  tariff  in  1861,  by  which  the  United 
States  passed  from  what  was  substantially  a  free  trade  com- 
mercial regime  to  one  of  high  protection;  (2),  the  sudden  ces- 
sation of  cotton  cultivation,  and,  as  a  consequence  of  this  and 


TRADE  OF  THE  UNITED  STATES.  365 

of  the  Civil  War,  the  temporary  collapse  of  the  cotton  trade 
with  Europe;  (3),  the  creation  of  an  enormous  national  debt, 
.simultaneously  with  considerable  additions  made  to  State  and 
other  debts  previously  contracted,  a  large  proportion  of  the 
funds  in  both  cases  being  furnished  by  foreigners;  and,  lastly, 
the  issue  of  an  inconvertible  paper  currency  to  take  the  place 
of  the  mixed  system  of  coin  and  convertible  credit  which 
formerly  prevailed.  The  passing  of  the  Morrill  tariff"  and  the 
present  rigidly  protective  system  of  the  United  States  will  be 
the  subject  of  special  examination  in  a  future  chapter.  For 
our  present  purpose  it  will  be  sufficient  if  we  attend  to  the 
three  last  of  the  occurrences  named,  and  mainl}^  to  the  conse- 
quences involved  in  the  sudden  increase  in  foreign  indebted- 
ness, taken  in  connection  with  the  collapse  of  the  cotton  trade. 
Let  us  first  observe  the  scale  on  which  the  new  debt  was 
created.  It  amounted — we  may  sa}^  in  round  numbers — to 
about  five  hundred  millions  sterling,  of  which  some  two  hun- 
dred millions  were  taken  by  foreigners.^  In  addition  to  this, 
numerous  other  loans  were  effected  on  State,  railway,  mining, 
and  other  securities,  reachino-  in  the  asfsrrerate  a  very  laro-e 
sum,  of  which  the  amount  that  found  its  way  to  Europe  was, 
according  to  Mr.  Wells,  not  less  than  one  hundred  millions 
sterling.  These  transactions  were  spread  over  several  3"ears — 
we  may  say  broadly,  over  the  last  three  years  of  the  war,  and 
the  two  or  three  immediately  succeeding.  Eegarding  them  as 
they  affected  the  financial  relations  of  Europe  and  the  United 
States,  the  result  may  be  thus  stated:  Europe  undertook  to 
send  immediately,  that  is  to  say,  as  fast  as  the  several  obliga- 
tions were  incurred,  some  £300,000,000  sterling  to  the  United 
States;  while  the  United  States  on  her  side  engaged  to  pay 
the  interest  on  this  sum  to  Europe  for  all  time,  or  until  the 
principal  was  discharged.     The  transactions,  as  I  have  said, 


*  See  Wells's  Report,  1869. 


366  INTERNATIONAL  VALUES. 

were  spread  over  some  five  or  six  years,  and,  making  allow- 
ance for  the  dividends  which  would  be  accruing  on  the  invest- 
ments from  the  time  they  were  effected,  and  which  might  be 
used  as  a  set-off  against  the  principal  sums  still  becoming  due 
as  new  investments  were  made,  the  amount  required  to  be  sent 
from  Europe  to  the  United  States  during  the  period  under  re- 
view would  not  be  less  than  some  £40,000,000  sterling  annu- 
ally. Under  ordinary  circumstances — in  such  a  state  of  ex- 
ternal trade,  for  example,  as  had  existed  previous  to  1860 — so 
enormous  and  sudden  an  increase  of  payments  from  one  con- 
tinent to  the  other  could  only  have  been  effected  through  the 
medium  of  bullion.  The  ordinary  flow  of  gold  from  New 
York  to  Europe  would  have  been  suddenly  checked,  and  a 
counter-current  would  have  set  in  from  Europe  to  New  York 
— operations  which  could  not  fail  to  produce  a  profound  fer- 
ment in  the  money  markets  of  the  two  continents.  As  it  was. 
however,  the  settlement  of  these  vast  transactions  occasioned 
very  little  disturbance  of  any  kind.  The  explanation  is  main- 
ly to  be  found  in  another  of  the  circumstances  to  which  I  have 
called  attention,  the  collapse  of  the  cotton  crop;  for  the  effect 
of  this  was  suddenly  to  leave  the  United  States  without  the 
means  of  paying  Europe  for  her  ordinary  importations  thence, 
swollen  as  these  had  recently  been  by  large  purchases  of  ma- 
terial of  war.  In  the  result  the  United  States  stood  largely  a 
debtor  to  Europe  on  commercial  account;  while  on  financial 
account  the  balance  was  not  less  decidedly  against  Europe; 
and,  the  amounts  on  both  sides  nearly  corresponding,  the  set- 
tlement of  the  complex  transactions  became  possible  by  the 
simple  expedient  of  setting  off  one  class  of  obligations  against 
the  other.  This,  in  effect,  is  what  was  done.  The  reciprocal 
obligations  of  Europe  and  the  United  States  were  thus  adjust- 
ed for  the  time,  though  by  a  sort  of  financial  coup  de  main  that 
could  not  well  be  repeated ;  and  now  I  invite  the  reader  to 
contemplate  the  state  of  things  which  has  supervened. 


TRADE  OF  THE  UNITED  STATES.  367 

§  8.  On  the  termination  of  the  war  the  cultivation  of  cotton 
was,  of  course,  resumed,  and  already  that  staple,  as  an  article 
in  the  trade  of  the  United  States  with  Europe,  has  attained  its 
former  proportions,  if  not  in  quantity  at  least  in  value.  On 
her  other  domestic  exports  (in  which,  be  it  remembered,  specie 
is  included)  there  has  been  an  increase,  though  not  a  large  one, 
and  only  during  the  last  two  years.  But  while  this  has  been 
the  case  as  regards  exports,  her  imports  have  risen  from 
335,200,000  dollars,  at  which  they  stood  in  1860,  the  year  pre- 
vious to  the  war,  to  617,000,000  dollars,  their  amount  accord- 
ing to  the  latest  returns.*  The  reader  will  remember  that 
previous  to  the  war  the  exports  of  the  United  States  had,  as 
a  normal  state  of  things,  exceeded  the  imports ;  the  excess  on 
this  account  during  the  ten  years  between  1851  and  1860  (in- 
clusive) having  amounted  to  an  average  sum  of  6,000,000  dol- 
lars annually.  Now,  however,  the  balance  is  on  the  other  side. 
It  is  the  imports  which  are  in  excess  of  the  exports.     In  the 

*  The  following  table  shows  the  state  of  the  external  trade  in  the  years  immedi- 
ately preceding  the  Civil  War,  and  Avill  enable  the  reader  to  compare  the  import 
and  export  trade  of  that  time  with  the  import  and  export  trade  of  the  five  years 
ending  1872.  *rhe  eailier  figures  I  have  taken  from  Mr.  Wells's  Essay  in  the 
Cobden  Club  volume :  for  the  later,  I  am  indebted  to  the  kindness  of  my  friend 
Mr.  Horace  White,  of  Chicago : 

Imports  (less  re-exports).  Domestic  exports 

(including  specie). 

1858  $251,700,000  $293,700,000 

185'J  317,800,000  335,800,000 

1860  335,200,000  373,100,000 

1868  351,200,000  352,700,000 

1869  412,200,000  318,000,000 

1870  431,900,000  420,500,000 

1871  513,100,000  513,000,000 

1872  617,600,000  501,100,000 


Annual  average)  .  . 

^$465,200,000  $421,060,000 

of  last  5  years  ) 

Average  annual  excess  of  imports  over  exports  during  last  5  years,  $41,140,000. 


368  .  INTERNATIONAL  VALUES. 

five  years,  1868-1872  (inclusive),  the  excess  amounted  on  an 
average  to  44,000,000  dollars  annually ;  while  in  the  last  year 
of  the  period  (1872)  it  grew  to  no  less  a  sum  than  116,000,000 
dollars.  Now,  from  the  explanations  already  given,  the  reader 
will  understand  that  such  a  state  of  external  trade,  assuming  it 
be  sound  and  normal,  would  imply  a  state  of  financial  relations 
between  the  United  States  and  Europe  in  which  the  former 
country  was  largely  a  creditor  of  the  latter;  for  it  is  only  on 
this  supposition  that  a  large  excess  of  imports  over  exports 
could  continue  consistently  with  national  solvency.  So  far, 
however,  from  the  facts  being  in  accordance  with  this  supposi- 
tion, they  are  exactly  the  reverse  of  this.  The  United  States 
is  largely  a  debtor  to  Europe  on  financial  account,  while  her 
exports  are  not  even  sufficient  to  cover  her  commercial  liabili- 
ties. It  will  be  worth  while  to  consider  this  position  of  affairs 
somewhat  more  in  detail. 

As  I  learn  from  figures  given  by  Mr.  Wells  in  his  Report 
for  1868,  the  dividends  due  to  European  holders  of  United 
States  stocks  of  various  kinds  amounted  in  that  year  to 
80,000,000  dollars.  This,  however,  is  but  a  portion  of  her  ex- 
tra commercial  obligations  to  Europe.  Her  remittances  to  for- 
eign countries  to  meet  the  expenses  of  her  citizens  residing  or 
traveling  abroad  reached  in  the  same  year,  according  to  the 
same  authority,  so  large  a  sum  as  25,000,000  dollars,  and  it 
does  not  appear  that  there  was  any  thing  exceptional  in  this 
expenditure.  Lastly,  we  learn  from  Mr.  Wells  that  an  annual 
debt  to  foreign  countries  of  24,000,000  dollars  more  is  incur- 
red on  account  of  freights  carried  in  foreign  bottoms.  The  ag- 
gregate of  these  various  sums  is  129,000,000  dollars,  in  round 
numbers  we  may  say  about  £26,000,000  sterling;  and  this 
sum  the  United  States  has  to  pay  annually  to  foreign  coun- 
tries, over  and  above  what  she  owes  on  account  of  her  impor- 
tations. Now,  as  I  have  already  explained,  there  is  but  one 
means  by  which  a  nation  can  in  the  last  resort  discharge  her 


TRADE  OF  THE   UNITED  STATES.  369 

liabilities  to  other  nations — namely,  through  the  value  of  her 
products  exported.  We  have  seen,  however,  that  the  exports 
of  the  United  States,  as  things  now  stand,  far  from  being  ad- 
equate to  the  liquidation  of  her  annual  aggregate  liabilities, 
are  insufficient  to  meet  those  incurred  on  commercial  account 
alone ;  the  deficiency,  taking  the  average  of  the  last  five 
years,  having,  as  I  have  just  shown,  reached  the  large  sum 
of  44,000,000  dollars  —  let  us  say  in  round  numbers  about 
£9,000,000  sterling.  We  have  thus  a  balance  of  £9,000,000 
on  commercial  account,  plus  a  further  sum  of  £26,000,000  on 
extra-commercial  account — in  all  £35,000,000  sterling — due, 
year  by  year,  by  the  United  States  to  foi'eign  countries,  in  ex- 
cess of  what  the; value  of  her  exported  goods  enables  her  to 
discharge.  The  question  arises.  How  is  this  liability  to  be  met? 
How  it  has  been  met  up  to  the  present  time  I  have  no  means 
of  accurately  determining ;  but  one  expedient,  we  know,  has 
been  brought  extensively  into  requisition.  During  the  period 
since  the  war  the  sale  of  American  securities  in  the  markets 
of  Great  Britain  and  the  Continent  has  been  large  and  increas- 
ing. The  United  States  has  ceased,  indeed,  to  add  to  her  pub- 
lic debt,  and  has  even  made  some  progress  in  reducing  it,  but  it 
is  probable  that  the  proportion  of  this  debt  in  the  hands  of  Eu- 
ropean holders  has  of  late  increased,  and  it  is  certain  that  the 
amount  of  European  capital  which  now  finds  its  way  to  private 
investment  in  America  is  immensely  greater  than  it  has  ever 
been  at  any  former  period.  Here,  then,  is  a  resource  which,  so 
far  as  it  goes,  and  so  long  as  it  lasts,  the  United  States  may 
employ  in  liquidation  of  her  uncovered  liabilities;  the  sums 
payable  by  Europe  in  purchase  of  American  securities  being 
as  much  available  in  discharge  of  American  debts  as  if  they 
were  obtained  in  payment  of  exports.*     Whether  those  sums 

*  The  mechanism  thioiigh  which  these  inteniational  transactions  are  carried 
into  effect  is  tlie  Foreign  Exeliangcs.  I  liave  not,  however,  thonglit  it  necessary 
to  enter  into  tills  part  of  tiie  subject,  as  it  lias  been  already  so  fully  and  lucidly 

24 


370  INTERNATIONAL  VALUES. 

have  hitherto  proved  sufficient  for  the  purpose  required,  must, 
for  the  moment,  remain  matter  for  conjecture,  but  it  may  be 
confidently  asserted  that,  in  any  case,  they  can  only  be  regard- 
ed as  a  temporary  make-shift.  No  nation  can  continue  to  pay 
its  foreign  debts  by  the  process  of  incurring  new  debts  to  meet 
a  balance  yearly  accruing  against  it;  yet  this,  in  truth,  is  the 
nature  of  the  financial  operation  by  which  of  late  years  the 
United  States  has  contrived  to  settle  accounts  with  the  rest  of 
the  world.  Even  on  the  supposition  that  European  invest- 
ment is  to  continue  on  its  present  scale,  the  interest  upon  it 
would,  as  I  have  shown,  come  in  time  to  exceed  the  principal 
annual]}^  invested ;  while  the  balance  uncovered  by  exports 
would  still  remain  absolutely  unprovided  for.  These  consid- 
erations lead  me  to  the  conclusion  that  the  present  condition 
of  the  external  trade  of  the  United  States  is  essentially  abnor- 
mal and  temporary.  If  that  country  is  to  continue  to  discharge 
her  liabilities  to  foreigners,  the  relation  which  at  present  ob- 
tains between  exports  and  imports  in  her  external  trade  must 
be  inverted.  Her  exports  must  once  again,  as  previous  to  1860, 
be  made  to  exceed  her  imports,  and  this  by  an  amount  greater 
than  the  excess  of  that  former  time  in  proportion  as  her  finan- 
cial obligations  to  foreign  countries  have  in  the  interval  in- 
creased. This,  it  seems  to  me,  is  a  result  which  may  be  pre- 
dicted with  the  utmost  confidence.  The  end  may  be  reached 
either  by  an  extension  of  exportation,  or  by  a  curtailment  of 
importation,  or  by  combining  both  these  processes,  but  by  one 
means  or  other  reached  it  will  need  to  be.  It  is  simply  the 
condition  of  her  remaining  a  solvent  nation.  The  people  of 
that  country  may,  therefore,  if  I  am  right  in  this  speculation, 
look  forward  to  witnessing  a  result  for  which  the  promoters 
of  their  present  commercial  policy  have  often  sighed  —  they 


expounded  by  Mr.  Goschen  in  his  work  on  tlic  "Foreign  Exchanges,"  to  which 
the  reader  is  referred. 


TRADE  OF  THE   UNITED  STATES.  371 

may  expect,  before  many  years,  to  see  United  States  com- 
modities selling  in  foreign  countries  in  vastly  greater  quanti- 
ties than  the  commodities  of  foreign  countries  in  the  markets 
of  the  United  States.  How  far  their  estimate  of  this  condition 
of  their  trade  will  be  affected  by  the  circumstance  that  a  large 
proportion  of  the  proceeds  from  those  augmented  foreign  sales 
will  find  its  way  into  European  pockets,  is  a  point  on  which  it 
would  be  scarcely  becoming  in  the  present  writer  to  offer  an 
opinion.* 

The  conclusion  just  stated  suggests  a  further  reflection.  A 
change  in  the  relation  of  exports  and  imports  in  the  trade  of 
a  country  can  only  be 'effected  through  a  change  in  relative 
prices  (measured  in  gold  or  silver)  as  they  exist  in  that  coun- 
try and  in  those  with  which  it  trades.  To  establish,  therefore, 
an  excess  of  exports  over  imports  in  the  trade  of  the  United 
States,  in  lieu  of  the  balance  the  other  way  which  now  exists, 
prices  there  must  be  lowered  in  relation  to  prices  in  Europe. 
This  may  be  accomplished  partly  by  an  advance  in  prices 
here  not  shared  by  the  United  States,  as  in  fact  has  already 
happened  in  the  case  of  some  important  commodities;  but  it 

*  In  the  Times  s  Philadelphia  Correspondent's  letter  of  October  17,  1873,  it  is 
stated  that  the  imports  from  the  United  States  had  at  that  time  begun  to  dedine, 
the  diminution  for  the  first  nine  months  of  1873,  as  compared  with  the  same  pe- 
riod for  1872,  having  amounted  to  nearly  $35,000,000.  On  the  other  hand,  it  is 
observed  that  the  exports  from  New  York  during  the  same  time  have  increased  by 
#32,000,000.  The  writer  goes  on  to  remark  :  "This  decrease  in  imports  and  in- 
crease in  exports  shows  a  balance  of  trade  in  our  favor,  and  explains  the  decline 
in  sterling  exchange.  The  Neiv  York  Journal  of  Commerce  is  jubilant  at  the 
prospect ;  declares  that  the  tide  of  gold  must  flow  toward  America,  and  announces 
that  the  balance  of  trade  being  in  our  favor  the  '  sovereigns  of  Great  Britain  must 
melt  their  pride  in  the  crucibles  of  tlie  American  mint.'"  The  New  York  Jour- 
nal of  Commerce  is  overhasty  in  its  conclusions.  In  its  exultation  it  overlooks 
the  circumstance  that  the  favoi-able  balance  will  be  all  too  small  to  discharge  the 
liabilities  of  the  United  States  to  Europe  on  account  of  interest  and  dividends  on 
American  securities  held  on  this  side.  The  sovereigns  of  Great  Britain,  there- 
fore, will  have  no  need  to  melt  their  pride  in  American  crucibles  for  the  present. 


372  INTERNATIONAL  VALUES. 

is  probable  that  the  end  will  be  reached  mainly  through  a  de- 
cline of  prices  on  the  other  side.  A  considerable  foil  of  gen- 
eral prices,  however,  is  a  remedy  to  which  manufacturers  and 
merchants  will  only  submit  when  pushed  to  extremity.  It 
will,  therefore,  only  come  when  credit  has  been  strained  to 
the  utmost,  and  a  catastrophe  is  seen  to  be  inevitable;  and 
then  it  will  probably  come  with  a  crash.  For  these  reasons 
I  should  be  disposed  to  look  forward  to  the  immediate  future 
of  American  trade  as  a  period  of  much  disturbance  and  fluctu- 
ation, culminating,  it  is  possible,  from  time  to  time  in  commer- 
cial crises.* 

In  offering  these  remarks  on  the  prospective  character  of  the 
external  commerce  of  the  United  States,  I  have  deliberate!}^ 
abstained  from  adverting  to  some  contingencies,  and  in  partic- 
ular to  two,  which  can  not  fail,  more  or  less  seriously,  to  affect 
it — I  mean  the  course  that  country  may  adopt  with  regard  to 
Protection,  as  well  as  with  regard  to  the  redemption  of  her  pa- 
per money.  I  have  thus  far  avoided  these  topics,  because  I  do 
not  conceive  that  any  decision  she  may  come  to  with  reference 
to  either — powerfully  operative  as  no  doubt  it  will  be  on  her 
future  commercial  fortunes  in  various  directions — can  possibly 
affect  the  particular  issue  to  which  the  preceding  remarks  have 
been  addressed.  A  persistent  policy  of  Protection  will,  no 
doubt,  have  the  effect  of  preventing  the  due  expansion  of  her 
external  trade  in  the  future  as  it  has  done  in  the  past,  if  it  does 
not  lead  to  its  positive  curtailment;  while  the  adoption  of  free 
trade  would  as  certainly  tend  to  its  rapid  development,  and 
thus  greatly  relieve  the  extreme  tension  of  the  situation.  But, 
under  all  circumstances,  if  the  United  States  is  to  remain  a 


*  As  I  write,  the  news  of  the  commercial  crisis  in  New  York  (lOth  September. 
1873)  has  reached  me.  From  tlie  accounts  we  have  yet  received  it  would  seem 
to  have  had  its  immediate  origin  in  railway  speculation  :  how  far  the  collapse  may 
he  connected  with  the  causes  to  wiiich  1  liave  been  calling  attention,  the  sequel 
will  probably  show. 


TRADE  OF  THE   UNITED  STATES.  373 

solvent  nation,  she  must  contrive  to  send  a  larger  value  out  of 
the  country  than  is  received  into  it,  and  this  larger  value  can 
take  no  other  form  than  the  products  of  her  industry.  Free- 
trader or  protectionist,  therefore,  an  excess  of  exports  over  im- 
ports in  her  foreign  trade,  sufiicient  in  amount  to  discharge  her 
international  liabilities,  is  a  condition  she  can  not  evade. 

I  may  venture  on  a  further  remark.  It  appears  to  me  that 
the  influence,  attributed  by  many  able  writers  in  the  United 
States  to  the  depreciation  of  the  paper  currency  as  regards  its 
effects  on  the  foreign  trade  of  the  country,  is,  in  a  great  degree, 
purely  imaginary,  founded,  as  I  conceive  it  to  be,  upon  an  erro- 
neous view  of  the  circumstances  which  determine  international 
demand.  An  advance  in  the  scale  of  prices,  measured  in  gold, 
in  a  country,  if  not  shared  by  other  countries,  will  at  once  af- 
fect its  foreign  trade,  giving  an  impulse  to  importations,  and 
checking  the  exportation  of  all  commodities  other  than  gold. 
A  similar  effect  is  very  generally  attributed  by  American 
writers  to  the  action  on  prices  of  the  greenback  inconvertible 
currency.  But  it  may  be  easily  shown  that  this  is  a  complete 
illusion.  Foreigners  do  not  send  their  products  to  the  United 
States  to  take  back  greenbacks  in  exchange.  The  return  which 
they  look  for  is  either  gold  or  the  commodities  of  the  country  ; 
and  if  these  have  risen  in  price  in  proportion  as  the  paper 
money  has  been  depreciated,  how  should  the  advance  in  paper 
prices  constitute  an  inducement  for  them  to  send  their  goods 
thither?  The  nominal  gain  in  greenbacks  on  the  importation 
is  exactly  balanced  by  the  nominal  loss  when  those  greenbacks 
come  to  be  converted  into  gold  or  commodities.  To  put  the 
argument  in  a  still  more  practical  shape:  Whatever  the  im- 
porting merchant  gains  in  the  increased  price  at  which  he  sells 
his  goods,  precisely  the  same  amount  he  looses  when  he  comes 
to  purchase  a  bill  by  which  to  remit  the  proceeds  of  the  sale  to 
the  country  whence  the  goods  came.  The  nominal  premium 
on  the  bill  will  just  neutralize  what  he  had  appeared  to  gain 


374  INTERNATIONAL  VALUES. 

on  the  sale  through  the  depreciation  of  the  paper  money.  It 
is  true  the  gain  may,  in  particular  cases,  exceed  the  loss,  but  if 
it  does,  the  loss  will  also,  in  other  cases,  exceed  the  gain.  On 
the  whole,  and  on  an  average,  they  can  not  but  be  the  equiva- 
lents of  each  other.  Iji  making  these  remarks  the  reader  will 
not  understand  me  as  contending  that  a  depreciated  currency 
is  absolutely  without  influence  on  the  foreign  trade  of  a  coun- 
try. So  far  as  it  introduces  uncertainty  and  risk  into  commer- 
cial transactions  it  no  doubt  affects  foreign  as  well  as  domestic 
trade,  and  affects  both  injuriously;  but  this  is  an  entirely  dif- 
ferent thing  from  acting  as  an  encouragement  to  importation, 
and  a  check  upon  exportation — the  effect  attributed  to  a  de- 
preciated currency  by  the  writers  to  whose  views  I  have  re- 
ferred. 


CHAPTER  IV. 

FREE  TRADE  AND  PROTECTIOK 

§  1.  The  foregoing  discussions  have  exhibited  the  conditions 
under  which  international  trade  arises,  and  the  nature  of  the 
advantages  that  flow  from  it.  It  has  been  seen  that  nations 
only  trade  with  one  another  when  by  doing  so  they  can  satisfy 
their  desires  at  smaller  sacrifice  or  cost  than  by  direct  pro- 
duction of  the  commodities  which  minister  to  them.  The  es- 
tablishment of  this  position  is  the  justification  of  the  doctrine 
of  free  trade;  since  it  is  manifest  that, if  nations  only  engage 
in  trade  when  an  advantage  arises  from  their  doing  so,  any  in- 
terference with  their  free  action  in  trading  can  only  have  the 
effect  of  debarring  them  from  an  advantage.  For  those,  there- 
fore, who  accept  the  economic  theory  of  international  trade, 
no  further  proof  of  the  essential  soundness  of  this  fundamental 
principle  of  commercial  policy  is  needed.  Nevertheless,  I  am 
unwilling  to  leave  the  subject  of  these  chapters  without  some 
fuller  consideration  than  has  yet  been  given  to  it  of  the  great 
controversy,  not  yet,  unfortunately,  extinct,  of  Free  Trade  ver- 
sus Protection.  I  have  said,  "not  yet  extinct:  perhaps  I  should 
rather  have  said,  even  now  active  and  glowing  with  something 
of  its  pristine  fervor;  for  we  have  only  to  turn  our  eyes  to 
France,  or  to  the  United  States,  not  to  speak  of  our  own  col- 
onies, to  see  with  what  vigor,  and  I  regret  to  say  with  what 
success,  the  venerable  sophism  still  maintains  itself,  alike  in  the 
public  press  and  in  national  legislatures.  Under  such  circum- 
stances an  examination  of  the  specific  doctrine  of  Protection 
will  even  yet,  perhaps,  not  seem  altogether  out  of  date ;  and. 


376  FREE   TRADE  AND  PROTECTION. 

thanks  to  Mr.  Wells,  the  United  States  Commissioner,  we  are 
not  without  abundant  illustrations  of  the  recent  working  of 
the  principle,  which  have  only  to  be  duly  pondered  in  the  light 
of  economic  theory,  to  teach  a  lesson  such  that  he  who  runs 
may  read. 

§  2.  The  system  of  Pj'otection  natural!}'  grew  out  of  the  sj's- 
tem  of  the  Balance  of  Trade.  They  were  not,  indeed,  so  much 
distinct  systems  as  different  aspects  of  the  same  system.  As 
the  Balance  of  Trade  doctrine  began  to  give  way,  that  of  Pro- 
tection was  gradually  inserted  in  its  place,  as  it  were  to  under- 
pin the  tottering  edifice.  The  aim  of  the  former  was  to  enrich 
the  country  by  drawing  to  it  the  precious  metals;  that  of  the 
latter  to  do  so  by  encouraging  native  industry ;  but  the  means 
adopted  were  identical,  as  was  also  the  point  of  view  from 
which  the  supporters  of  the  two  theories  regarded  commercial 
problems.*      Consistently  carried  out,  the  Balance  of  Trade 


*  And  I  may  add  the  criterion  by  which  they  tested  results.  This  has  been 
([uite  uneqnivocally  evinced  by  the  recent  controversies  in  France.  In  a  statement 
made  before  a  commission  of  inquiry,  appointed  just  before  the  war,  M.  Pouyer- 
Qnertier  maintained  that  French  agriculture  in  a  period  of  twelve  years,  from  1858 
to  1869,  had  sufl'ered  a  loss  of  300,000,000  francs.  And  what  was  the  process  of 
reasoning  by  which  he  arrived  at  this  conclusion  ?  Simply  this.  It  appeared  that 
during  the  period  in  question  Frencli  imports  had  exceeded  French  exports  by  the 
amount  stated,  and  from  this  fact  M.  Pouyer-Quertier  drew  the  inference  that 
France  was  a  loser  to  this  amount  on  her  foreign  trade.  Why  he  supposes  the 
loss  to  have  fallen  exclusively  on  agriculture  I  do  not  quite  perceive.  A  reply  to 
this  statement  was  made  by  M.  De  Kergolay  in  a  speech  delivered  by  him  a  few 
months  since  as  President  of  the  French  Central  Agricultural  Society.  That  re- 
ply is  perhaps  sufficiently  conclusive  as  against  M.  Pouyer-Quertier,  but  coming 
as  it  does  from  a  free-trader  certainly  does  not  give  one  a  high  idea  of  the  present 
state  of  economic  science  in  France.  M.  T)e  Kergolay  first  objects  to  the  period 
selected  by  the  protectionist  advocate  for  comparison  ;  he  next  challenges  the  cor- 
rectness of  the  calculations  on  which  the  result  is  based;  lastly,  he  asks  what  does 
the  fact  prove.  "The  importation  of  products  foreign  to  the  soil  can  not  be  re- 
garded as  a  loss  to  the  country.     Coflfee  and  cocoa,  tea  and  spices,  woods  for  dye- 


MODIFIED  DEMANDS.  377 

system  must  have  extinguished  foreign  trade,  since  it  is  demon- 
strable that  the  permanently  favorable  balance  which  it  aimed 
at  producing  is  not  capable  of  realization ;  and  consistently 
carried  out,  Protectionism  would  put  an  end,  if  not  to  all  for- 
eign trade,  at  least  to  all  such  as  furnished  us  with  commodities 
capable  of  being  produced  in  the  protected  country ;  for  the 
essence  of  the  doctrine  is,  to  encourage  native  industry  by  ex- 
cluding the  products  of  foreign  industry,  wherever  these  come 
into  competition  with  commodities  which  native  industry  can 
produce.  Protectionists,  however,  rarely  now  attempt  to  carry 
out  their  doctrine  in  its  rigor,  and,  instead  of  requiring  an  ab- 
solute exclusion  of  foreign  products,  are  commonly  content  to 
demand  such  a  measure  of  protection  as,  to  borrow  their  lan- 
guage, shall  put  the  home  producer  on  a  footing  of  equality 
with  his  foreign  rival.  If  the  latter  possesses  no  advantage 
over  the  former,  then  the  trade,  as  the  phrase  goes,  "  can  stand 
alone,"  and  no  protective  duty  is  asked  for;  but  if  the  foreign- 
er possesses  an  advantage,  this  must  be  neutralized  by  a  coun- 
tervailing duty.  The  reader  who  has  followed  the  foregoing 
exposition  of  the  grounds  of  international  trade  will  perceive 
that  this  more  modest  form  of  the  doctrine  would,  in  its  prac- 
tical issue,  be  entirely  tantamount  to  the  former,  since,  as  was 
there  shown,  the  existence  of  international  trade  rests  on  the 
diiferent  productive  capacities  with  respect  to  particular  com- 
modities of  different  countries :  if,  therefore,  each  nation  is  to 


ing  or  working  pui-poses,  are  not  indigenous  to  the  soil  of  France.  Tliey  must 
be  imported,  but  how  can  the  necessary  cost  be  set  down  as  a  national  loss  ?"  Ap- 
parently, if  the  imported  articles  were  indigenous,  the  validity  of  the  protectionist's 
conclusion  would  be  admitted  by  this  champion  of  free  trade.  As  I  have  shown 
in  the  last  chapter,  the  relation  of  imports  to  exports  is  determined  by  causes  quite 
independent  of  the  character  of  the  tariff.  Protection  will  indeed  diminish  the 
aggregate  amount  of  exports  and  imports  taken  together,  but,  whatever  be  the 
commercial  regime,  the  relation  between  them  will  be  such  as  the  position  of  the 
country,  taking  all  her  international  credits  and  obligations  into  account,  shall  re- 
qmre. — See  Times,  September  18,  1873. 


378  FREE  TRADE  AND  PROTECTION. 

set  itself  to  neutralize  this  difference,  wherever  it  appears,  by 
means  of  countervailing  duties,  it  is  plain  that  the  triumph  of 
the  system  would  be  the  annihilation  of  foreign  trade.  If  in- 
deed equality  in  productive  conditions  could  be  attained  by 
what  might  be  described  as  a  process  of  "  leveling  up ;"  if 
Protection  could  contrive  that  every  commodity  should  be  pro- 
duced in  every  country  with  the  same  facility  with  which  it  is 
produced  on  the  spot  of  the  globe  most  suitable  to  its  produc- 
tion —  though  even  so  it  loould  annihilate  foreign  trade  —  there 
would  yet  be  something  to  be  said  for  this  mode  of  attain- 
ing equality.  It  may,  however,  be  doubted  if  the  gain  which 
might  accrue  in  material  comforts  from  the  increased  produc- 
tiveness of  the  earth  would  not  be  more  than  counterbalanced 
by  the  intellectual  and  moral  loss  which  would  result  from  the 
withdrawal  of  the  principal  motive  to  the  intercourse  of  man- 
kind. Protectionists,  however,  not  being  able  to  "level  up," 
propose  to  "level  down,"  and  aim  at  reaching  equality  by,  so 
to  speak,  handicapping  commercial  countries  against  each  oth- 
er, making  each  carry  weight  in  the  markets  of  the  others  ex- 
actly sufficient  to  counterpoise  its  special  advantages.  Such  is 
the  theory  of  trade  which  now,  it  seems,  finds  favor  on  the  oth- 
er side  of  the  Atlantic*  In  the  proposal,  however,  to  sacrifice 
tlie  very  ends  of  industry  and  commerce  in  order  to  promote 
equality,  we  may,  perhaps,  detect  the  savor  rather  of  a  French 
than  of  an  American  origin.  A  theory  essentially  the  same 
was  propounded  a  few  years  ago  by  M.  Alby,  in  the  Revue  des 
Deux  Mondes,  in  an  essay  written  with  much  elaboration  and 
parade  of  scientific  precision,  and,  it  must  be  presumed,  with 
skill  and  effect,  since  the  exposition  was  accepted  by  protec- 
tionists in  the  United  States  as  a  triumphant  statement  of  their 
argument,  and  met  with  consideration  from  even  free -trade 
journals  in  that  country.     Under  these  circumstances  I  shall 

*  See  Mr.  Wells's  Ilcpoi'ts  ami  Essays  passiw. 


M.  ALBY'S  THEORY.  379 

make  no  apology  for  devoting  a  brief  space  to  the  considera- 
tion of  the  protectionist  case  as  stated  by  M.  Alby. 

§  3.  The  position  taken  by  M,  Alby  in  his  article  in  the 
Revue  des  Deux  Mondes^  is,  that  the  doctrine  of  Protection  is 
in  theory  sound,  though  he  admits  that  in  old  countries  like 
France  it  is  not  possible  fairly  to  carry  it  into  effect  For  this 
reason  he  is  in  favor  of  a  modified  free  trade  for  France  in  her 
actual  circumstances.  But,  while  taking  this  line  as  a  practi- 
cal politician,  he  strenuously  contends  for  the  theoretic  sound- 
ness of  the  protectionist's  view.  According  to  M.  Alby,  the 
apparent  triumph  which  free-traders  commonly  gain  over  their 
opponents  arises  from  the  imperfect  way  in  which  the  protec- 
tionist case  is  put.  Free-traders  attack  the  system  in'  detail, 
joining  issue  on  each  particular  duty  ;  whereas  the  strength  of 
the  protectionist  case  lies  in  its  ensemble^  in  its  completeness  as 
a  whole. 

"  Let  us  take,  for  instance,"  says  M.  Alby,  "  the  case  of  mining  indus- 
try. Every  one  needs  iron,  and  iron  is  produced  in  France  by  a  very  re- 
stricted number  of  furnaces ;  and  here  is  the  way  free-traders  put  the 
case.  '  The  price  of  iron,'  say  they,  '  is  raised  by  the  customs'  duty  on 
foreign  iron.  Is  it  just  that  thii-ty-eight  millions  of  Frenchmen  should 
pay  more  for  iron  than,  in  the  absence  of  duty,  it  is  worth,  in  order  to 
enrich  a  few  iron-masters  V  If  we  go  no  further  than  this — if  the  case 
remains  isolated,  only  one  answer  is  possible.  With  the  exception  of  the 
iron  -  masters,  every  one  will  exclaim,  '  No,  it  is  not  just,  it  is  an  odious 
monopoly !'  Very  good ;  but  let  us  put  a  similar  case  for  another  indus- 
try, the  manufacture  of  cloth.  The  answer  will  be  the  same.  Only  this 
time  the  cloth  manufacturer  will  turn  round  on  the  iron-master  and  say, 
'  Where  is  your  grievance  ?  I  pay  more  for  your  iron  than  I  should 
have  to  pay  for  foreign  iron  if  it  entered  free.  Is  it  not  just  that  you  pay 
me  a  higher  price  for  my  cloth  than  it  might  be  purchased  at  abroad  ?' 
The  argument  is  unanswerable.  The  iron-master  will  be  forced  to  ac- 
knowledge this.     As  we  run  successively  the  entire  circle  of  industrial 

*  See  the  number  for  15th  October,  18G9. 


380  FBEE  TRADE  AND  PROTECTION. 

and  agricultural  production,  with  each  new  industry  that  we  take  ac- 
count of,  the  area  of  the  apparent  injustice  will  be  continually  narrowing 
till  we  end  by  finding  ourselves  in  presence  of  a  series  of  people  paying 
dearer  for  what  they  purchase,  but  making  others  pay  dearer  for  what 
they  sell.  They  have  no  ground  for  mutual  reproach.  Well,  such,"  con- 
tinues M.  Alby,  "  is  the  system  of  Protection  in  its  ensemble.  It  is  a  sort 
of  mutual  assm-ance  against  foreign  competition,  an  associative  pact 
which  embraces  the  entire  country.  Each  consents  to  pay  for  all  the 
products  he  requires  a  price  augmented  by  the  customs'  tariff,  on  the 
condition  of  obtaining  for  his  own  i^roducts  in  the  home  market  a  price 
equally  augmented  by  the  same  means,  so  that  they  shall  return  him  a 
profit." 

M.  Alby  apparently  overlooks  the  fact  that  it  is  only  those 
industries  which  are  carried  on  under  a  relative  disadvantage 
that  stand  in  need  of  protection  ;  and  that  consequently — since 
in  no  country  are  all  industries  equally  favored  by  nature — 
the  consummation  he  contemplates  with  so  much  satisfaction 
is  incapable  of  realization  in  any  part  of  the  world,  during  any 
stage  of  commercial  progress.  How,  for  example,  could  the 
wine-growers  or  silk- weavers  of  France,  or  again,  how  could 
the  Western  farmers  or  Southern  cotton-planters  of  the  United 
States,  be  compensated,  under  M.  Alby's  system,  for  the  price 
they  pay  for  foreign  imports  in  consequence  of  a  protective 
tariff?  By  obtaining  in  return,  forsooth,  a  protective  duty,  in 
France  on  wine  and  silk,  and  in  the  United  States  on  wheat 
and  cotton!  But  passing  by  this  "little  rift  within  the  lute," 
let  us,  in  order  to  exhibit  the  radical  absurdity  of  this  pretty 
theory,  assume  that  all  branches  of  production  in  France  stand 
equally  in  need  of  protection.  The  argument  is,  that,  provided 
each  person  receives  in  his  capacity  of  producer  a  price  for  his 
commodity  as  much  higher  than  its  price  under  free  trade  as 
that  which  he  pays  in  his  capacity  of  consumer  for  what  he 
requires,  no  harm  will  be  done.  Accepting  this  view,  a  per- 
fect system  of  Protection  might  seem  to  be  tantamount  simply 
to  a  general  depreciation  of  money.     All  persons  would  re- 


M.  A  LEY'S  THEORY.  381 

ceive  higher  money  remuneration  than  under  free  trade,  and 
would  pay  this  away  in  higher  prices — a  consummation,  the 
advantage  of  winch  to  native  industry  is  not  apparent.  This 
mode  of  conceiving  the  case,  however,  implies  a  most  inade- 
quate appreciation  of  the  consequences  involved  in  M.  Alby's 
scheme.  M.  Alby  fails  to  perceive  that  the  high  price  which 
Protection  secures  is  rendered  necessary  in  consequence  of  the 
more  onerous  conditions  under  which  native  industry,  tempted 
by  its  inducements,  is  encouraged  to  work.  Frenchmen  are 
encouraged  to  produce  iron  from  ores  of  inferior  quality  by 
the  high  price  secured  to  them  through  their  protective  tariff. 
In  the  absence  of  Protection  they  would  obtain  their  iron  on 
more  favorable  terms — at  a  smaller  sacrifice  of  labor  and  ab- 
stinence— by  exchanging  for  it  their  wines  and  silks  with  En- 
gland. A  similar  remark  applies  to  every  protective  duty 
that  is  really  effective  for  its  purpose.  It  necessarily  implies 
production  carried  on  under  more  onerous  conditions.  On  the 
supposition,  therefore,  that  M.  Alby's  system  were  feasible,  the 
practical  result  would  be,  not  simply  a  general  rise  of  prices, 
but  an  increase  in  the  cost  —  cost,  be  it  remembered,  in  the 
sense  not  of  mere  money  outlay,  but  of  actual  difficulty,  of  real 
sacrifice  —  of  producing  every  article  the  creation  of  French 
industry.  All  Frenchmen  would  be  compelled  to  labor  half 
as  hard  again,  and  to  save  half  as  much  again,  in  order  to 
procure  every  necessary  and  comfort  they  enjoy.  But  then 
equality  and  justice  would  be  realized.  No  doubt,  just  as 
they  might  be  realized  by  compelling  every  one  to  move 
about  with  a  weight  attached  to  his  leg.  The  weight  would, 
indeed,  be  an  impediment  to  locomotion,  but  provided  it  were 
in  each  case  exactl}'  proportioned  to  the  strength  of  the  limb 
which  drew  it,  no  one,  according  to  M.  Alby's  way  of  looking 
at  things,  would  have  any  reason  to  complain.  No  one  would 
walk  as  fast  as  if  his  limbs  were  free,  but  then  his  neis-hbor 
would  be  equally  fettered,  and  if  it  took  him  twice  as  long  to 


382  FREE  TRADE  AND  PROTECTION. 

reacli  his  destination  as  before,  he  would  at  least  have  com- 
pany on  his  journey.  Strange  that  such  speculation  should 
find  acceptance  in  the  country  of  Say  and  Bastiat! 

§  4.  Such  is  the  theory  of  Protection  in  its  most  general 
form,  as  set  forth  by  one  of  its  latest  expositors,  and  accepted 
in  the  country  in  which  its  influence  is  at  present  supreme,  al- 
most to  the  degree  of  absolutely  controlling  legislation.  But 
it  will  be  instructive  to  enter  into  the  argument  in  somewhat 
more  of  detail.  As  I  have  said,  the  position  taken  in  the 
United  States  is,  that  Protection  is  only  needed  and  only  asked 
for  where  American  industry  is  placed  under  a  disadvantage 
as  compared  with  the  industry  of  foreign  countries.  What, 
then,  we  have  to  ask,  in  the  first  place,  is  the  criterion  by  which 
the  alleged  disadvantage  attaching  to  American  industry  is  es- 
tablished? As  we  learn  from  Mr.  Wells,*  the  criterion  taken  is 
the  cost  of  production  of  the  articles  claiming  protection,  which 
again,  he  informs  us,  is  estimated  almost  exclusively  by  refer- 
ence to  the  money  price  of  labor.  The  rates  of  wages  meas- 
ured in  money  are  higher  in  the  United  States  than  in  Europe, 
and  therefore,  it  is  argued,  the  cost  of  producing  commodities 
is  higher  there  than  here.  It  is  strange  that  those  who  em- 
ploy this  argument  should  not  have  perceived  that  it  proves 
too  much.  The  high  rates  of  wages  in  the  United  States 
are  not  peculiar  to  any  branch  of  industry,  but  are  universal 
throughout  its  whole  range.    If,  therefore,  a  high  rate  of  wages 


*  "In  most  of  the  tariff  discussions  that  have  taken  place  of  late  in  the  United 
States,  the  question  of  the  necessity  and  extent  of  Protection  is  made  to  turn  al- 
most wholly  upon  the  difference  in  the  cost  [price]  of  labor  employed  in  domestic 
as  compared  with  foreign  industry — which  differences,  as  already  sliown,  are  cer- 
tainly veiy  considerable.  And  it  is  also  very  generally  taken  for  granted  in  such 
discussions  that  the  nominal  rate  paid  for  wages,  of  itself  alone,  or  at  least  in  a 
very  great  degree,  determines  both  the  cost  of  production  and  tiie  social  condition 
and  prosperity  of  tlie  laborer."     (Wells's  liejjort  for  18(58,  pp.  GU,  70.) 


COST  OF  PRODUCTION.  383 

proves  a  high  cost  of  production,  and  a  high  cost  of  produc- 
tion proves  a  need  for  Protection,  it  follows  that  the  farmers 
of  Illinois  and  the  cotton-planters  of  the  Southern  States  stand 
in  as  much  need  of  fostering  legislation  as  the  cotton-spinners 
of  New  England  or  the  iron-masters  of  Pennsylvania !  A  cri- 
terion which  leads  to  such  results  must,  I  think,  be  regarded 
as  sufiiciently  condemned.  The  fallacy  is,  in  truth,  the  same 
as  that  which  so  awkwardly  marred  the  pretty  theory  of  M. 
Alby,  who,  as  we  saw,  in  carrying  the  boon  of  Protection  with 
impartial  hand  round  the  wbole  circle  of  the  industries,  unfor- 
tunately overlooked  the  trifling  circumstance  that  all  indus- 
tries are  not  in  each  country  equally  favored  or  disfavored  by 
nature,  and  have  not,  therefore,  equal  need  of  his  protecting 
care.  If  American  protectionists  are  not  prepared  to  demand 
protective  duties  in  favor  of  the  Illinois  farmer  against  the 
competition  of  his  English  rival,  they  are  bound  to  admit  ei- 
ther that  a  high  cost  of  production  is  not  incompatible  with  ef- 
fective competition,  or  else  that  a  high  rate  of  wages  does  not 
prove  a  high  cost  of  production  ;  and  if  this  is  not  so  in  Illi- 
nois, then  I  wish  to  know  why  the  case  should  be  different  in 
Pennsylvania  or  in  New  England.  If  a  high  rate  of  wages  in 
the  first  of  these  States  be  consistent  with  a  low  cost  of  produ- 
cing corn,  why  may  not  a  high  rate  of  wages  in  Pennsylvania 
be  consistent  with  a  low  cost  of  producing  coal  and  iron?  or  a 
high  rate  of  wages  in  New  England  be  consistent  with  a  low 
cost  of  producing  calico  ?  I  must  own  that  Mr.  Wells's  treat- 
ment of  this  branch  of  the  argument  is,  to  my  mind,  eminently 
unsatisfactory.  It  is  true  he  objects  to  the  protectionist  cri- 
terion of  cost  of  production — money  wages,  but  only  on  the 
ground  that  it  fails  to  take  account  of  the  varying  efficiency 
of  labor,  and  of  the  varying  purchasing  power  of  money  in  re- 
lation to  the  laborer's  requirements.*     The  fallacy,  however. 


*  See  his  Report  for  1SG8,  page  70.     I  must  acknowledge,  too,  tliat  his  reply 


384  FREE   TRADE  AND  PROTECTION. 

involved  in  that  criterion  goes  far  deeper  than  this,  and  is 
only  fully  exposed  when  exhibited  as  inverting  the  real  rela- 
tion of  facts.  As  I  have  already  proved,*  the  rate  of  wages, 
whether  measured  in  money  or  in  the  real  remuneration  of  the 
laborer,  affords  an  approximate  criterion  of  the  cost  of  produc- 
tion, either  of  money  or  of  the  commodities  that  enter  into  the 
laborer's  real  remuneration,  hut  in  a  sense  the  inverse  of  that  in 
which  it  is  understood  in  the  argument  under  consideration:  in 
other  words,  a  high  rate  of  wages  indicates  not  a  high  but  a 
low  cost  of  production  for  all  commodities,  measured  in  which 
the  rate  of  wages  is  high  ;  as,  on  the  other  hand,  a  low  rate  of 
wages  indicates  a  high  cost  for  all,  measured  in  which  the  rate 
is  low.  Thus  in  the  United  States  the  rate  of  wages  is  high, 
whether  measured  in  gold  or  in  the  most  important  articles  of 
the  laborer's  consumption — a  fact  which  proves  that  the  cost 
of  producing  gold,  as  well  as  that  of  producing  those  other  com- 
modities, is  low  in  the  United'  States.  On  the  other  hand,  the 
rates  of  wages  in  Europe  measured  by  the  same  standards  are 
— at  least  as  compared  with  rates  in  the  United  States — low, 


founded  on  these  exceptions  wholly  fails,  in  my  judgment,  to  meet  the  protection- 
ist argument.  What  he  shows  is  that  labor  in  England,  though  much  higher 
priced  than  in  most  European  countries,  and  in  particular  than  in  Eussia,  is  still 
so  much  more  efficient  here  than  there,  that  the  high  English  rates  are  practically 
cheaper  for  the  English  capitalist  than  the  lower  Continental  rates  for  the  capi- 
talist of  the  Continent.  What  is  the  bearing  of  this  upon  the  American  demand 
for  protection  against  England?  Will  Mr.  Wells  maintain  that,  as  the  efficiency 
of  English  labor  is  to  that  of  Russian,  so  is  the  efficiency  of  American  labor  to 
that  of  English  ?  If  not,  how  does  his  objection  to  the  protectionist  criterion  of 
<'0st,  founded  on  the  difllcrent  degrees  of  industrial  efficiency,  affect  the  argument? 
And  as  little  does  he  seem  to  mc  to  make  good  the  pertinency  of  his  objection  on 
the  other  ground  taken.  It  is  possible  that  in  a  few  manufacturing  districts  in  the 
United  States  the  rent  of  an  artisan's  dwelling  is  higher  tlian  in  some  manufactur- 
ing districts  in  England,  but  in  the  most  important  articles  of  the  laborer's  con- 
sumption, in  the  whole  list  of  "provisions,"  for  example,  the  advantage  in  respect 
to  price  is  unquestionably  with  the  American  consumer. 
*  See  ante,  j).  33G,  et  seq.,  and  pp.  .34.J-347. 


AS  MEASURED  BY  WAGES.  385 

which  again  merely  proves  that  the  cost  of  producing  the  com- 
modities constituting  those  standards  is  high  in  Europe,  as  com- 
pared with  their  cost  in  the  United  States.  This  elementary 
truth  is  so  far  from  being  generally  appreciated  that  I  should 
not  be  surprised  if  its  simple  statement  should  appear  to  some 
persons,  and  possibly  even  to  some  economists,  as  paradoxical.* 
I  would  ask  such  to  consider  what  are  the  true  causes  of  the 
high  remuneration  of  American  industry.  It  will  surely  be 
admitted  that,  in  the  last  resort,  these  resolve-theraselves  into 
the  one  great  fact  of  its  high  productive  power.  Capitalists 
and  laborers  receive  large  remuneration  in  America  because 
their  industry  produces  largely.  That  is  the  simple  and  patent 
fact  which  all  must  acknowledge.  But  what  is  the  meaning 
of  a  highly  productive  industry,  if  it  be  not  a  liberal  industrial 
return  as  compared  with  the  sacrifice  undergone?  And  what, 
again,  does  this  mean  if  not  a  low  cost  in  relation  to  the  thing 
produced  ?  I  must,  therefore,  contend  that  the  high  scale  of 
industrial  remuneration  in  America,  instead  of  being  evidence 
of  a  high  cost  of  production  in  that  country,  is  distinctly  evi- 
dence of  a  low  cost  of  production — of  a  low  cost  of  production, 
that  is  to  say,  in  the  first  place,  of  gold,  and,  in  the  next,  of  the 
commodities  which  mainly  constitute  the  real  wages  of  labor — 
a  description  which  embraces  at  once  the  most  important  raw 
materials  of  industry  and  the  most  important  articles  of  general 
consumption.  As  regards  commodities  not  included  in  this 
description,  the  criterion  of  wages  stands  in  no  constant  rela- 
tion of  any  kind  to  their  cost,  and  is,  therefore,  simply  irrele- 
vant to  the  point  at  issue.  And  now  we  may  see  what  this 
claim  for  protection  to  American  industry,  founded  on  the 
high  scale  of  American  remuneration,  really  comes  to:  it  is 
a  demand  for  special  legislative  aid  in  consideration  of  the  pos- 

*  And  yet  it  ought  not  to  do  so.  The  doctrine  was  very  clearly  enunciated 
nearly  lialf  a  century  ago  in  IVIr.  Senior's  Essay,  already  frequently  referred  to,  on 
the  "  Cost  of  obtaining  Money." 

25 


386  FBEE  TRADE  AND  PROTECTION. 

session  of  special  industrial  facilities^ — a  complaint,  in  short, 
against  the  exceptional  bounty  of  nature. 

§  5.  Perhaps  I  shall  here  be  asked  how,  if  the  case  be  so — 
if  the  high  rate  of  industrial  remuneration  in  America  be  only 
evidence  of  a  low  cost  of  production — the  fact  is  to  be  explain- 
ed, since  fact  it  undoubtedly  is,  that  the  people  of  the  United 
States  are  unable  to  compete  in  neutral  markets,  in  the  sale 
of  certain  important  wares,  with  England  and  other  European 
countries.  No  one  will  say  that  the  people  of  New  England, 
New  York,  and  Pennsylvania  are  deficient  in  any  industrial 
qualities  possessed  by  the  workmen  of  any  country  in  the 
world.  How  happens  it,  then,  that,  enjoying  industrial  ad- 
vantages superior  to  other  countries,  they  are  yet  unable  to 
hold  their  own  against  them  in  the  general  markets  of  com- 
merce? I  shall  endeavor  to  meet  this  objection  fairly,  and,  in 
the  first  place,  let  me  state  what  my  contention  is  with  regard 
to  cost  of  production  in  America.  I  do  not  contend  that  it  is 
low  in  the  case  of  all  commodities  capable  of  being  produced 
in  the  country,  but  only  in  that  of  a  large,  very  important, 
but  still  limited  group.  With  regard  to  commodities  lying 
outside  this  group,  I  hold  that  the  rate  of  wages  is  simply 
no  evidence  as  to  the  cost  of  their  production,  one  way  or  the 
other.  But,  secondly,  I  beg  the  reader  to  consider  what  is 
meant  by  the  alleged  "inability"  of  New  England  and  Penn- 
sylvania to  compete,  let  us  say,  with  Manchester  and  Sheffield 
in  the  manufacture  of  calico  and  cutlery.  What  it  means,  and 
what  it  only  can  mean,  is  that  they  are  unable  to  do  so  consist- 
ently with  obtaining  that  rate  of  remuneration  on  their  industry 
which  is  current  in  the  United  States.  If  only  American  laborers 
and  capitalists  would  be  content  with  the  wages  and  profits  cur- 
rent in  Great  Britain,  there  is  nothing  that  I  know  of  to  prevent 
them  from  holding  their  own  in  any  markets  to  which  Man- 
chester and  Sheffield  send  their  wares.     And  this  brings  us  to 


EUROPEAN  COMPETITION.  387 

the  heart  of  the  question.  Over  a  large  portion  of  the  great 
field  of  industry  the  people  of  the  United  States  enjoy,  as 
compared  with  those  of  Europe,  advantages  of  a  very  ex- 
ceptional kind ;  over  the  rest  the  advantage  is  less  decided, 
or  they  stand  on  a  par  with  Europeans,  or  possibly  they 
are,  in  some  instances,  at  a  disadvantage.  Engaging  in  the 
branches  of  industry  in  which  their  advantage  over  Europe 
is  great,  they  reap  industrial  returns  proportionately  great; 
and,  so  long  as  they  contine  themselves  to  these  occupations, 
they  can  compete  in  neutral  markets  against  all  the  world, 
and  still  secure  the  high  rewards  accruing  from  their  ex- 
ceptionally rich  resources.  But  the  people  of  the  Union 
decline  to  confine  themselves  within  these  liberal  bounds. 
They  would  cover  the  whole  domain  of  industrial  activity, 
and  think  it  hard  that  they  should  not  reap  the  same  rich 
harvests  from  every  part  of  the  field.  They  must  descend 
into  the  arena  with  Sheffield  and  Manchester,  and  yet  secure 
the  rewards  of  Chicago  and  St.  Louis.  They  must  employ  Eu- 
ropean conditions  of  production,  and  obtain  American  results. 
What  is  this  but  to  quarrel  with  the  laws  of  nature  ?  These 
laws  have  assigned  to  an  extensive  range  of  industries  carried 
on  in  the  United  States  a  high  scale  of  return,  far  in  excess  of 
what  Europe  can  command,  to  a  few  others  a  return  on  a  scale 
not  exceeding  the  European  proportion.  American  enterprise 
would  engage  in  all  departments  alike,  and  obtain  upon  all  the 
high  rewards  which  nature  has  assigned  only  to  some.  Here 
we  find  the  real  meaning  of  the  "  inability  "  of  Americans  to 
compete  with  the  "  pauper  labor  "  of  Europe.  The}^  can  not  do 
so,  and  at  the  same  time  secure  the  American  rate  of  return 
on  their  work.  The  inability  no  doubt  exists,  but  it  is  one 
created,  not  by  the  drawbacks,  but  by  the  exceptional  advan- 
tages of  their  position.  It  is  as  if  a  skilled  artisan  should  com- 
plain that  he  could  not  compete  with  the  hedger  and  ditcher. 
Let  him  only  be  content  with  the  hedger  and  ditcher's  rate  of 


388  FREE   TRADE  AND  PROTECTION. 

pay,  and  there  will  be  nothing  to  prevent  him  from  entering 
the  lists  even  a2;ainst  this  rival. 

The  end  here  proposed  by  American  enterprise  is,  it  must 
be  owned,  unattainable  under  free  trade ;  for  free  trade  is  con- 
tent to  turn  natural  laws  to  the  best  account:  it  does  not  seek 
to  transcend  them.  But,  though  unattainable  under  free  trade, 
protectionists  assure  us  that  the  thing  may  be  done  by  means 
of  their  system.  It  is  only  necessary,  say  these  authorities,  to 
exclude  foreign  competition  by  laying  high  import  duties  on 
the  products  in  which  American  superiority  over  Europe  is 
not  assured,  and  the  same  high  returns  which  attend  on  Ameri- 
can industry  in  its  most  productive  fields  will — the  laws  of  na- 
ture notwithstanding — be  realized  throughout  its  entire  range. 
And  this  is,  in  fact,  the  undertaking  in  which  those  who  guide 
the  commercial  policy  of  the  Union  have  been  engaged  since 
1861.  Let  us  for  a  moment  pause  and  consider  how  this  bold 
attempt  to  override  the  laws  of  nature  has  fared. 

§  6.  And  here  we  are  confronted  at  once  with  the  difficul- 
ty of  interpreting  an  industrial  experiment.  The  system  of 
American  Protection,  in  its  present  exaggerated  form,  may  be 
regarded  as  dating  from  1861,  when  the  Morrill  tariff  became 
law.  If  all  the  other  conditions  of  the  case  had  remained  sub- 
stantially the  same  since  that  time,  we  might  now,  by  a  mere 
inspection  of  results,  pronounce  without  hesitation  on  the  ef- 
fect of  the  policy  then  inaugurated;  but  instead  of  this  observe 
how  the  facts  stand.  In  the  same  year  the  great  Civil  War 
commenced,  in  the  course  of  which  the  destruction  of  human 
life  and  of  wealth  in  every  form  probably  exceeded  any  thing 
which  had  before  occurred  within  the  same  time  in  the  history 
of  human  affairs.  Tliis  was  soon  followed  by  the  creation  of 
an  immense  national  debt,  entailing  a  large  permanent  increase 
of  taxation,  and  by  the  issue  of  an  inconvertible  paper  curren- 
cy, circulating  throughout  the  Union,  and  affecting  alike  prices 


A  TEN  YEARS'  EXFElilMENT.  389 

and  wages  in  every  branch  of  trade.  On  the  other  hand,  oc- 
carrences  of  a  very  different  kind  marked  the  course  of  the  pe- 
riod under  review.  Mineral  resources  were  discovered  which 
are  now  yielding  vast  wealth,  and  oil  springs  which  have  be- 
come the  source  of  an  entirely  new  and  rapidly  increasing 
trade.  Eailway  enterprise,  again,  during  the  same  time  ap- 
pears to  have  taken  on  a  new  activity,  while  the  progress  of 
invention  in  the  mechanical  arts  has  never  for  a  moment  flag- 
ged. In  presence  of  influences  so  numerous,  so  novel,  and  so 
vast,  each  affecting  industry  in  its  own  fashion  so  powerfully, 
who  shall  say  what  portion  of  what  we  now  find  existing  can 
properly  be  attributed  to  any  one  of  them?  The  problem, 
in  its  mere  statement,  brings  into  striking  relief  the  utter  futil- 
ity of  that  so-called  "inductive  method"  which  some  writers 
hold  to  be  the  proper  one  in  social  and  economic  inquiries — 
the  method,  that  is  to  say,  which  would  proceed  by  drawing 
general  conclusions  as  to  the  operation  of  particular  causes 
from  the  summarized  results  of  statistical  tables.  For,  assum- 
ing that  we  have  taken  accurate  stock  of  the  present  industrial 
condition  of  the  United  States,  as  well  as  of  that  which  was  in 
existence  previous  to  1861,  so  long  as  we  confine  our  view  to 
the  mere  statistical  aspect  of  the  case,  what  warrant  have  we 
for  attributing  any  portion  of  the  change  that  has  taken  place 
to  one  cause  rather  than  to  another?  Manifestly  we  have 
none;  nor  can  we  advance  a  single  step  toward  the  solution  of 
any  problem  involved  in  the  facts,  till  we  pass  from  the  mere 
tabulation  of  results  to  an  examination  of  the  nature  and  tend- 
encies of  the  causes  in  operation.  When  we  have  ascertained 
these,  and  shown  by  deductive  reasoning  from  them  the  effects 
they  are  fitted  to  produce,  we  are  then  for  the  first  time  in  a 
position  to  attempt  an  interpretation  of  the  varied  and  com- 
plex phenomena. 

Now  this  is  the  vantage  ground  on  which  a  student  of  Po- 
litical Economy  in  dealing  with  such  a  problem  stands.     He 


390  FBEE  TRADE  AND  PROTECTION. 

has  ascertained  the  direction  in  which  the  various  industrial 
forces,  operating  in  the  field  of  the  experiment,  work ;  he 
knows,  for  example,  that  in  the  present  instance  the  destruc- 
tion caused  by  the  Civil  War  must  have  left  a  large  gap  in 
the  then  existing  wealth  of  the  United  States;*  but  he  knows 
also,  what  is  not  so  obvious,  the  extraordinary  rapidity  with 
which  countries  devastated  by  war,  but  in  which  the  indus- 
trial habits  of  the  people  have  not  been  broken  through,  so 
soon  as  peace  and  security  are  restored,  recover  from  the  havoc 
which  war  has  made.  He  knows,  again,  that  the  meaning  of 
a  national  debt  is  the  necessity  of  submitting,  so  long  as  it 
remains  unpaid,  to  a  known  amount  of  taxation,  tantamount 
in  its  effects  to  an  equivalent  deduction  from  the  general  earn- 
ings of  the  community.  He  knows,  further,  the  consequences 
likely  to  flow  from  the  issue  of  an  inconvertible  currency; 
that,  once  depreciated  below  the  par  of  gold,  it  results  in  a 
scale  of  nominal  prices,  having  for  its  effect  to  derange  the 
monetar}^  relations  of  the  community,  to  relieve  debtors  from 
their  obligations  at  the  expense  of  their  creditors,  and  to  intro- 
duce much  risk  and  uncertainty  into  general  business,  but  not, 
as  is  commonly  supposed,  to  affect  in  any  serious  manner  the 
external  trade  of  a  country. f  At  the  same  time,  the  econo- 
mist can  take  account  of  the  immense  addition  made  to  the 
material  resources  of  the  United  States,  by  those  mineral  and 
other  discoveries  to  which  reference  has  been  made,  as  well  as 
by  the  progress  of  mechanical  invention,  the  extension  of  the 

*  This,  one  would  think,  would  be  sufficiently  obvious,  but  in  arguing  with  pro- 
tectionists it  is  difficult  to  know  wlnit  to  take  for  granted.  According  to  the  ex- 
treme zealots  of  the  protectionist  school  the  Civil  War,  it  seems,  is  to  be  regarded 
as  among  the  most  potent  causes  of  the  recent  prosperity  of  the  Union.  "The 
conclusion,"  says  Mr.  Wells,  "was  pointed  at  by  some,  and  even  soberly  main- 
tained on  the  floor  of  Congress  by  the  advocates  of  the  system  of  high  Protection, 
tliat  the  war,  regarded  from  a  merel}'  material  jioint  of  view,  was  in  reality  a 
blessing."     ("Cobden  Club  Essays,"  Second  Series,  p.  487.) 

t  This  point  has  been  dealt  with  ante,  p.  373. 


A  TEN  YEARS'  EXPERIMENT.  391 

railway  system,  and  the  other  industrial  improvements  which 
have  marked  recent  years.  Now  these — putting  aside  for  a 
moment  the  protectionist  tariff— are  the  main  and  capital  oc- 
currences affecting -the  economic  career  of  the  United  States 
since  1861;  and,  in  order  to  judge  experimentally  of  the  ac- 
tion of  Protectionism  on  the  interests  of  the  country  since  that 
date,  it  becomes  necessary  to  effect  some  rough  elimination  of 
so  much  of  the  general  result  as  may  properly  be  attributed  to 
those  other  causes.  In  other  words,  we  must  endeavor  to  de- 
termine in  what  direction,  on  the  whole,  has  been  the  net  bear- 
ing of  their  influence;  whether  in  the  direction  of  an  abridg- 
ment of  the  productive  power  and  commercial  resources  of  the 
United  States,  or  in  that  of  their  enlargement.  For  my  part, 
I  have  no  hesitation  in  accepting  upon  this  point  what  appears 
to  be  the  nearly  universal  opinion  of  Americans,  that,  the  pe- 
riod of  actual  warfare  once  passed,  the  influences  favoring  in- 
dustrial progress  have,  on  the  whole,  largely  preponderated 
over  those  tending  to  retard  it;  and  that  consequently,  if  there 
were  nothing  else  in  the  matter,  we  should  be  justified  in  expect- 
ing, at  all  events  since  1866,  a  more  rapid  expansion  of  Amer- 
ican commerce,  and  a  more  liberal  return  on  American  indus- 
try, than  prevailed  in  the  period  previous  to  1861. 

Well,  how  do  the  facts  tally  with  this  reasonable  expecta- 
tion ?  I  will  allow  Mr.  Wells  to  answer  this  question.  In  his 
two  Reports  to  Congress,  and  in  his  Cobden  Club  Essay,  he 
has  gone  very  fully  and  in  great  detail  into  the  whole  subject, 
and  those  who  desire  particulars  must  be  referred  to  those 
writings.  It  suffices  here  to  state  in  summary  the  results  of 
his  investigations ;  and  these  are  to  the  effect  that,  comparing 
the  decade  1860-'70  with  the  previous  decade,  the  commercial 
progress  of  the  United  States  has,  in  the  later  period,  suffered 
a  serious  check ;  that  the  commercial  tonnage  has  during  the 
same  period  positively  declined;  that  the  business  of  ship- 
building has  undergone  an  almost  complete  collapse;  that  the 


392  FREE  TRADE  AND  PROTECTION. 

rate  of  increase  in  the  external  trade  which  during  the  de- 
cade 1850-'60  had  been  represented  by  eighty-one  per  cent, 
on  the  trade  of  the  preceding  decade,  has  fallen  to  one  rep- 
resented by  nineteen  per  cent. ;  and,  lastly,  and  on  this  point 
I  am  content  to  rest  the  entire  case,  that — having  regard,  on 
the  one  hand,  to  the  nominal  rise  in  wages  reckoned  in  a 
depreciated  currency,  and,  on  the  other,  to  the  nominal  rise 
of  prices  measured  in  the  same  medium — the  real  remunera- 
tion of  the  United  States  laborer  in  all  the  leading  depart- 
ments of  industry  has  during  the  nine  years  ending  1868  pos- 
itively fallen  in  a  proportion  not  less  than  twenty  per  cent,  on 
his  previous  earnings.*  These  are  singular  results  to  have 
accrued  from  a  still  unlimited  command  of  rich  virgin  soil, 
from  enlarged  mineral  resources,  ever  progressing  mechanical 
invention,  and  an  industrial  energy  and  enterprise  which  have 
certainly  suffered  no  abatement.  To  what  cause  are  they  to 
be  ascribed,  and  more  particularly  how  are  we  to  account  for 
this  lowered  rate  of  return  upon  American  industry?  It  is 
possible  the  ravages  of  the  war  may  not  even  yet  have  been 
wholly  repaired ;  the  gap  made  in  the  national  capital  may  not 
be  even  now  quite  filled  up.  The  increased  taxation  certainly 
remains,  and  constitutes  a  deduction,  let  us  say  of  some  five  or 
six  per  centf  from  American  earnings.     The  depreciated  cur- 


*  On  this  point  Mr.  Wells's  conclusion  is  as  follows:  while  "the  average  in- 
crease of  all  the  elements  which  constitute  the  food,  clothing,  and  bhelter  of  a 
famih'  has  been  about  seventy-eight  per  cent.,  as  compared  witii  the  standard 
prices  of '60-'61,"the  increase  which  took  place  during  the  same  time  in  wages 
was  only  in  the  proportion,  "for  unskilled  labor  of  fifty  per  cent.,  for  skilled  me- 
chanical labor  of  sixty  per  cent."  ....  (Report  for  1868,  pp.  14,  ir>.)  With- 
out knowing  the  proportions  in  which  tlie  several  enhanced  articles  enter  into  the 
laborer's  consumption,  accurate  deductions  as  to  tlie  efl'ect  of  this  change  on  his 
well-being  can  not  of  course  be  made ;  but  it  is  at  least  certain  that  the  facts  stated 
imply  a  deterioration  and  a  considerable  one  in  his  condition.  In  stating  it  at 
about  twenty  per  cent,  it  seems  to  me  that  I  am  well  within  the  mark. 

t  The  revenue  of  the  United  States  before  the  war  stood  at  about  £12,000,000: 


A  TEN  YEARS'  EXPERIMENT.  393 

rency  has,  no  doubt,  caused  much  individual  hardship,  and  in- 
troduced more  or  less  derangement  into  commercial  affairs. 
But  who  will  say  that  any  of  these  occurrences,  or  all  of  them 
taken  together,  suffice  to  account  for  the  facts  which  Mr.  Wells 
has  brought  to  light — the  slackened  rate  of  progress,  the  ar- 
rested commercial  growth,  and,  above  all,  the  diminished  re- 
ward for  the  workman?  The  problem,  I  must  own,  is  for  me 
insoluble,  until  I  take  account  of  that  one  influence  which,  for 
the  moment,  I  bad  put  aside.  I  turn  to  the  Morrill  tariff,  and 
to  the  aggravations  of  that  code  which  have  since  been  enacted. 
I  find  there  duties  amounting,  on  an  average,  to  forty-seven 
per  cent,  ad  valorem,  imposed  on  nearly  all  articles*  of  any  im- 
portance imported  into  the  United  States ;  on  such  raw  prod- 
ucts as  coal,  timber,  iron,  hides,  and  sugar ;  on  such  manufac- 
tures as  clothing  in  every  form,  cottons,  woolens,  and  every 
kind  of  textile  fabric,  on  manufactured  iron — in  a  word,  on 
nearly  all  the  raw  materials  of  industry,  and  many  of  the  most 
important  articles  of  general  consumption.  And  with  these 
facts  before  me,  the  slackened  rate  of  progress,  the  arrested 
commercial  growth,  and  the  workman's  diminished  reward  be- 
come at  once  intelligible ;  for  these  are  the  precise  results  which 
such  a  system  of  protection  is  fitted  to  engender.  With  such 
a  barrier  as  duties  amounting  to  forty-seven  per  cent,  ad  va- 
lorem erected  against  foreign  importation,  what  else  could  hap- 

its  amount  since  the  war  has  fluctuated  between  £65,000,000  and  £70,000,000: 
the  increase,  therefore,  has  been,  we  may  say  in  round  numbers,  some  £.55,000,000, 
representing  so  much  of  the  produce  of  the  land"  and  labor  of  the  country,  former- 
ly left  with  the  producers,  now  taken  for  the  purposes  of  tlie  State.  According  to 
Mr.  Wells's  estimate  (Report  for  1809,  p.  xiii.),  the  value  of  the  total  annual  pro- 
duction of  the  United  States  in  1868  amounted  to  £1,365,000,000,  from  which  a 
deduction  of  £55,000,000  would  represent  a  proportion  of  about  four  per  cent. 
To  this  there  would  have  to  be  added  the  increase  of  the  local  taxation  of  the  sev- 
eral State's,  of  which  I  have  no  statistics. 

*  So  nearly  so,  that  if  we  substitute  for  "articles  paying  duty"  the  entire  im- 
ports, the  proportion  is  only  reduced  to  forty-four  per  cent. 


394  FREE   TRADE  JXB  PROTECTIOX. 

pen  than  a  retardation  of  the  growth  of  external  trade?  While 
coal,  timber,  iron  are  loaded  with  heavy  duties,  can  ship-build- 
ing be  expected  to  prosper?  and,  as  with  ship-building,  so  with 
some  scores  of  other  trades,  the  details  of  whose  decline  will  be 
found  in  Mr.  Wells's  repertory.  But  I  prefer  to  rest  the  case 
upon  the  simple  fact  of  the  reduced  real  wages  of  the  work- 
men ;  for  here  the  symptom  ma}'-  be  regarded  as  specific.  As 
I  have  already  had  occasion  to  explain,  the  direct  effect  of  a 
protective  duty,  when  it  is  really  operative,  is  to  compel,  on 
the  part  of  the  community  employing  this  expedient,  a  resort  to 
more  onerous  conditions  of  production  for  the  protected  article. 
Every  article,  therefore,  produced  in  the  United  States,  which 
would  not  have  been  produced  there  but  for  the  protective 
tariff,  represents  an  expenditure  of  labor  and  capital  greater 
than  would  have  been  necessary  to  obtain  the  same  article  had 
it  been  obtained  under  free  trade.  In  a  word,  American  labor 
and  capital,  as  a  whole,  have,  effort  for  effort  and  outlay  for 
outlay,  been  producing  smaller  results  since  1861  than  former- 
ly ;  and  this  being  so,  what  other  explanation  do  we  need  of 
the  actual  facts  which  we  encounter — of  diminished  returns 
on  American  industry,  of  a  fall  in  the  real  wages  of  labor? 

But,  say  the  protectionists,  though  measured  in  products  the 
returns  on  the  protected  industries  may  be  less,  we,  by  exclud- 
ing foreign  competition,  secure  for  the  producers' a  proportion- 
ally higher  price  ;  the  effect  of  which  is  that,  though  working 
at  a  disadvantage,  they  nevertheless  obtain  the  rate  of  profit 
current  in  the  country.  Let  us  observe  the  precise  significance 
of  this  reply.  It  may  be  conceded  that  a  small  return  upon 
industry  in  the  form  of  products  may  be  compensated  to  the 
producers  by  a  proportional  increase  in  the  price;  but  then 
it  is  at  the  expense  of  those  who  pay  the  increased  price  ;  and 
the  question  remains,  by  whom  are  the  higher  prices  paid  in 
the  present  instance?  There  is  only  one  possible  answer — by 
the  citizens  of  the  United  States.     In  effect  these  higher  prices 


THE  POLITICAL  ARGUMENT.  395 

are  the  machinery  through  which  the  real  rewards  of  Ameri- 
can industry  have  been  reduced.  Consider,  for  example,  the 
case  of  an  Illinois  farmer:  it  is  tolerably  plain  that  if,  pro- 
ducing corn  under  the  same  conditions  as  previous  to  1861, 
and  getting  for  it  the  same  price  in  foreign  markets,  he  has  to 
pay  a  higher  price  for  every  article  of  his  clothing,  and  for  ev- 
ery article  into  the  composition  of  which  coal,  timber,  iron,  or 
hides  enter,  his  real  remuneration  can  not  but  be  considerably 
less  than  if  all  these  things  could  be  obtained  at  free-trade 
prices.  And  the  case  of  the  farmer  is  not  isolated  :  it  is  that 
of  the  workers  in  every  department  of  industry,  and  exhibits 
unequivocally  the  net  outcome  of  the  protectionist  experiment 
which  commenced  with  the  passing  of  the  Morrill  tariff.  Pro- 
tectionists then  undertook  to  secure  for  the  protected  interests 
of  their  country  as  high  industrial  rewards  as  are  reaped  in  the 
most  flourishing  branches  of  United  States  production — and, 
it  may  be  allowed,  they  have  succeeded  in  their  venturous  en- 
terprise. But  how  ?  Simpl}^  by  lowering  universally  the  level 
of  those  rewards ;  by  enforcing,  through  the  medium  of  arti- 
ficially enhanced  prices,  a  huge  deduction  from  the  income  of 
the  community  at  large,  and  handing  over  the  proceeds  to  the 
protected  trades.  Such  is  the  upshot  of  this  notable  attempt 
to  transcend  physical  laws,  and  to  secure  by  legislation  what 
nature  has  denied. 

§  7.  In  the  foregoing  examination  of  the  working  of  Pro- 
tection in  the  United  States,  the  argument  has  been  confined 
to  what  may  be  considered  its  purely  economic  side.  It  is  not 
uncommon,  however,  to  hear  the  system  defended  on  social 
and  political  grounds ;  and  it  may,  therefore,  be  well,  before 
taking  leave  of  the  subject,  to  make  some  brief  reference  to 
this  other  aspect  of  the  case.  For  example,  the  position  is 
sometimes  taken  that,  admitting  all  that  can  be  urged  .econom- 
ically in  favor  of  free  trade,  a  nation  has  yet  other  interests  to 


396  FREE   TRADE  AND  PROTECTION. 

take  account  of  than  the  production  and  distribution  of  wealth; 
it  has  to  consider  its  moral,  social,  and  political  advancement 
— ends  to  which  the  working  of  free  trade,  it  is  alleged,  is  not 
always  favorable.  For  the  tendency  of  free  trade,  even  on  the 
showing  of  its  supporters,  it  is  argued,  is  to  turn  the  industry 
of  a  nation  mainly  into  a  few  channels — those  channels,  name- 
ly, in  which  it  happens  to  enjo}'',  in  relation  to  competing  na- 
tions, exceptional  advantages,  so  that,  in  the  practical  result,  the 
nation  adopting  it  is  compelled  to  confine  its  industry  within 
comparativel}^  narrow  bounds.  Free  trade  thus  tends  to  cir- 
cumscribe industrial  experience;  and,  by  doing  so,  to  interfere 
with  that  practical  education  which  a  nation  derives  from  the 
prosecution  of  industry.  Far  better,  it  is  urged,  deliberately 
to  sacrifice  some  of  the  results  of  material  prosperit}^,  if  by  this 
means  we  can  secure  scope  for  a  wider  and  more  diversified 
cultivation,  such  as  is  furnished  by  an  industry  branching  in 
numerous  directions  and  offering  to  enterprise  a  varied  field. 

I  can  not  deny  that  there  is  a  certain  basis  of  truth  in  the 
considerations  just  stated ;  and  that  circumstances  may  even 
be  imagined  in  which  they  would  possess  real  cogency.  In- 
deed, the  United  States  themselves  at  one  time  presented  the 
world  with  a  remarkable  example  in  point.  Free  trade,  as  I 
had  once  occasion  to  point  out,  constituted  undoubtedly  one 
of  the  main  supports  of  slavery  in  the  South;  for  by  its  means 
Southern  slave -masters  were  enabled,  while  employing  their 
thralls  in  the  few  crude  industries  in  which  alone  their  labor 
was  efficient,  to  command  all  the  comforts  and  luxuries  of  civ- 
ilized existence.  Free  trade  thus  undoubtedly  favored,  and 
rendered  possible,  the  low  state  of  civilization  which  uj)  to  1860 
was  characteristic  of  the  southern  portion  of  the  United  States. 
Had  that  part  of  the  country  been  dependent  exclusively  or 
mainly  on  its  own  industry  for  the  direct  supply  of  its  material 
wants,  a  greater  variety  of  industrial  occupations  would  have 
been  necessar3^     At  the  least  a  considerable  portion  of  the 


THE  POLITICAL  ARGUMENT.  3»7 

negro  population  must  have  been  educated  and  trained  to  me- 
chanical pursuits,  and  a  foundation  would  thus  have  been  laid 
for  social  progress.  It  must  be  owned,  therefore,  that  the  line 
of  argument  we  are  considering  is  not  without  a  certain  sup- 
port in  the  facts  of  past  experience;  an  admission,  however, 
which  amounts  to  no  more  than  this,  that  barbarism  and  tyran- 
ny have  sometimes  gained  in  strength  by  availing  themselves 
of  the  expedients  of  civilization.  But  the  practical  question 
is,  not  whether  under  extraordinary  and  exceptional  circum- 
stances free  trade  may  be  made  to  serve  the  purposes  of  des- 
potism, but  whether  in  a  country,  such  as  the  United  States, 
of  great  and  varied  resources,  peopled  by  free  men  in  posses- 
sion of  all  the  most  advanced  industrial  knowledge  and  trained 
in  the  usages  of  civilization — whether  in  such  a  couiitrj^,  arti- 
ficial restraint  upon  the  freedom  of  trade  is  needed,  in  order  to 
secure  for  the  people  that  variety  of  occupations  which,  it  may 
be  freely  conceded,  is  favorable  to  national  development. 

And  here,  in  the  first  place,  it  must  be  remembered  that  the 
capacity  possessed  by  a  country  of  yielding  particular  elements 
of  wealth  is  never  of  a  uniform  character,  but  exists  in  general 
in  very  great  variety,  according  to  the  fertility,  accessibility,  or 
other  incidents  of  the  natural  agents  from  which  such  elements 
are  derived.  As  a  consequence  of  this,  commodities  obtained 
directly  from  natural  agents,  that  is  to  say,  raw  products,  are 
raised  in  all  countries  at  various  costs,  and  as,  in  conformity 
with  the  well-known  economic  principle,  it  is  the  cost  of  the 
most  costly  portion  raised  that  governs  the  price  of  the  whole, 
it  follows  that  the  actual  price  at  which  a  commodity  of  this 
description  sells,  depends  not  simply  on  the  inherent  fertility 
of  the  sources  of  supply,  but  on  this  taken  in  connection  with 
the  total  quantity  of  the  commodity  produced  in  the  country. 
As  the  richest  and  most  accessible  natural  agents  are  those 
which  are  first  resorted  to,  the  suppl}^,  up  to  a  certain  point, 
is  obtained  at  the  lowest  cost  at  which  the  countrv,  in  the  act- 


398  FREE   TRADE  AND  PROTECTION. 

ual  state  of  its  industry,  can  yield  it;  but  as  the  requirements 
of  the  community  increase,  recourse  is  had  to  natural  agents 
of  inferior  capacity,  and,  as  population  progresses,  to  agents 
of  capacity  inferior  still;  the  cost  of  production  rising  with 
each  extension  of  the  area  of  cultivation,  and  the  price  with, 
the  cost  of  production.  Now,  from  this  law  governing  the  cost 
of  raw  products,  it  results  that,  however  superior  one  country 
mny  be  to  others  in  its  natural  capacity  of  yielding  particular 
elements  of  wealth,  it  yet  rarely  happens  that  these  latter  are 
not  able  to  encounter  its  competition  in  raising  even  those 
products  in  respect  to  which  its  capacity  is  greatest,  and  this 
under  the  most  perfect  freedom  of  trade.  Great  Britain,  for 
example,  would  be  said  to  have  a  natural  superiority  over  the 
United  States  in  the  production  of  coal  and  iron,  just  as  the 
United  States  would  be  said  to  have  a  natural  superiority  over 
Great  Britain  in  producing  corn ;  but  in  neither  case  is  the 
superiority  of  a  kind  to  cause  the  United  States,  under  a  per- 
fectly free  trade,  to  give  up  producing  iron  and  coal,  any  more 
than  to  cause  Great  Britain  to  give  up  producing  corn.  The 
effect  of  free  trade  would  not  be  to  extinguish  any  of  those 
branches  of  production  in  either  country,  but  merely  to  alter 
the  ^proportions  in  which  they  are  carried  on.  Great  Britain 
would  continue,  as  she  does  now,  to  produce  corn  so  far  as  it 
was  profitable  for  her  to  do  so,  and  would  satisfy  her  remain- 
ing requirements  by  importation,  while  the  United  States 
would  follow  a  like  course  in  the  case  of  iron  and  coal.  And 
so  also  it  would  be  with  such  products  as  lumber  and  leather. 
It  may  be  that  Canada  has  in  these  products  greater  resources 
than  the  United  States;  and  it  is  probable  that  the  abolition 
of  the  high  import  duties  now  imposed  by  the  latter  country 
would  lead  to  some  more  or  less  considerable  re-adjustment  of 
the  proportions  in  which  the  industries  they  occasion  are  now 
carried  on ;  but  this  is  a  very  different  thing  from  the  extinc- 
tion of  those  industries.     Probably  the  utmost  that  under  the 


THE  POLITICAL  ARGUMENT.  399 

freest  tariff  would  occur  is  the  abandonment  in  the  United 
States  of  some  of  the  least  productive  sources  of  supply,  com- 
bined with  a  corresponding  extension  of  the  area  of  production 
in  Canada,  while  the  capital  now  employed  in  the  United 
States  in  developing  resources  which  would  be  better  reserved 
for  another  day  would  not  be  slow  in  finding  employment  in 
more  profitable  channels.  It  is  unnecessary  to  pursue  further 
this  line  of  illustration.  The  same  argument,  it  is  evident, 
may  be  applied  in  turn  to  every  branch  of  j)roduction  employ- 
ed in  extracting  commodities  directly  from  the  store-house  of 
nature.  Within  this  circle  of  industries,  at  all  events,  it  may 
be  confidently  asserted  that  Protection  does  not  maintain  in 
the  United  States  a  single  one  which  would  not  exist  equally 
under  free  trade.  It  is  only  when  her  people,  not  content 
with  cultivating  their  magnificent  resources  in  the  degree  in 
which  nature  has  endowed  them,  seek  to  disturb  the  natural 
proportion  and  to  push  enterprise  in  certain  directions  beyond 
the  profitable  point,  that  the  need  arises  for  artificial  support. 
The  tendency  of  Protection,  therefore,  at  least  within  this  par- 
ticular department  of  industrial  activity,  is  not  to  create  new 
industries,  not  to  diversif}^  industrial  pursuits,  but  to  disturb 
the  natural  development  of  the  country,  and  to  turn  capital 
from  profitable  to  unprofitable  fields. 

So  far,  however,  the  argument  applies  only  to  the  industries 
of  raw  produce — as  they  are  called,  the  "extractive  indus- 
tries;" and,  it  will  be  urged,  that  it  is  especially  in  manufac- 
tures that  scope  would  be  sought  for  the  cultivation  of  indu.s- 
trial  intelligence  and  skill.  Carried,  however,  even  thus  far,  I 
may  observe,  the  argument  at  least  suffices  to  destroy  the  rai- 
son  cVetre,  so  far  as  it  rests  on  the  ground  we  are  now  consid- 
ering, of  a  large  portion  of  the  present  tariif  of  the  United 
States,  which  makes  no  distinction  between  raw  and  manu- 
factured products,  but  loads  alike  both  classes  with  heavy  du- 
ties.    But  though  the  particular  considerations  that  are  appli- 


400  FREE   TRADE  AND  PROTECTION. 

cable  to  the  industries  of  raw  produce  do  not  apply  to  those  of 
manufacture,  it  will  not  be  difficult  to  show  that  here  also  the 
policy  of  Protection  is  wholly  unnecessary  as  a  means  of  se- 
curing for  a  nation  that  help  to  its  general  progress  which  is 
furnished  by  variety  in  its  industry. 

At  the  utmost,  it  must  be  remembered,  all  that  Protection 
can  do  for  producers  is  to  secure  for  them  a  monopoly  of  the 
home  market.  But,  in  supplying  the  home  market,  manufac- 
turers in  a  country  like  the  United  States,  or  in  any  new  coun- 
try rich  in  varieties  of  raw  material,  have,  for  a  large  circle  of 
productions,  very  substantial  advantages,  even  when  matched 
against  countries  of  long  established  and  highly  organized  in- 
dustry such  as  Great  Britain.  In  the  first  place,  most  kinds 
of  raw  material  will  in  the  former  class  of  countries  be  cheap, 
much  cheaper  for  the  most  part  than  in  old  countries — suppos- 
ing, that  is  to  say,  that  the  price  is  not  artificially  raised  by 
protective  tariffs.  In  the  next,  the  manufacturer  is  close  to 
the  source  of  supply,  and  is  thus  saved  the  cost  of  transport  on 
the  raw  material,  always  a  considerable  item ;  and,  lastly,  he  is 
also  saved  the  cost  of  transport,  which  falls  on  his  foreign  com- 
petitor, in  sending  to  market  the  manufactured  article.  On  all 
these  accounts,  manufacturers  in  old  countries  like  those  of 
Western  Europe  lie  under  heavy  disadvantages  in  competing 
in  the  home  markets  of  countries  like  the  United  States — dis- 
advantages which  constitute  for  the  latter  countries  a  sort  of 
natural  protection,  which  can  not  fail  to  secure  for  them  under 
all  circumstances  a  considerable  field  for  the  cultivation  of 
manufacturing  industry. 

But  it  will  be  urged  that,  the  disadvantages  in  question  not- 
withstanding, experience  has  proved  that,  over  a  considerable 
area  of  manufacturing  industry,  European  manufacturers  are 
capable,  under  free  trade,  of  underselling  those  of  the  United 
States  even  in  their  own  home  markets.  The  fact  is  undenia- 
ble; and  I  can  only  meet  the  objection  founded  on  it  by  ask- 


THE  POLITICAL  AUG  UMEXT.  "      401 

ing  those  who  urge  it,  whether  their  object  is  to  produce  a 
state  of  things  in  which  foreign  nations  shall  be  excluded  from 
the  markets  of  the  United  States  in  the  sale  of  all  commodities 
whatever;  for  if  this  be  their  object,  its  attainment  must,  let 
them  well  understand,  be  tantamount  to  the  extinction  of  the 
foreign  trade  of  their  country.  If  foreign  merchants  can  find 
a  sale  for  no  product  whatever,  raised  in  the  countries  from 
which  they  come,  in  United  States  markets,  they  are  deprived 
of  the  means  by  which  a  trade  with  that  country  is  permanent- 
1}'  possible.  It  must  be  remembered  that  the  point  we  are  now 
considering  is  the  utility  of  Protection  as  a  means  of  helping 
the  social  and  political  progress  of  peoples,  and  supposing  those 
who  advocate  this  view  are  j^repared  to  go  the  lengths  just  de- 
scribed, it  comes  to  this,  that  their  scheme  for  promoting  civ- 
ilization amounts  to  a  plan  for  putting  an  end  to  international 
trade  —  putting  an  end  to  the  chief  occasion,  and  main  and 
most  enduring  motive,  for  the  intercourse  of  mankind!  Now 
it  must  be  freely  admitted  that  this  mode  of  advancing  human 
interests  is  not  compatible  with  the  maintenance  of  free  trade 
— nay,  that  it  is  precisely  on  the  ground  of  its  tendency  to  pro- 
mote the  interchange  of  commodities  among  nations  that  free 
trade  claims  for  itself  the  credit  of  being  one  of  the  principal 
and  most  powerful  of  civilizing  agencies.  It  can  not,  there- 
fore, be  denied  that  under  free  trade  American  manufacturers 
would  not  improbably  have  to  undergo  the  patriotic  anguish 
of  finding  themselves  undersold  in  some  kinds  of  goods  by 
foreign  merchants  in  their  own  markets.  But  there  would  be 
no  need  for  them,  therefore,  to  despair.  It  by  no  means  fol- 
lows that  the  range  of  their  manufacturing  industry  would 
suffer  contraction :  it  is  even  exceedingly  probable — I  am  in- 
clined to  add,  certain — that  it  would,  on  the  whole,  be  large- 
ly extended.  Particular  branches  of  manufacture  now  car- 
ried on  would  probably  be  brought  within  narrower  limits, 
or  might  altogether  disappear ;  but  on  the  other  hand,  others, 

26 


402  FREE   TBADE  AXD  FEOTECTIOX. 

now  barely  existing,  would  quite  certainl}^  take  fresh  root, 
and  in  all  probability  become  the  staples  of  a  new  export 
trade ;  for,  be  it  well  observed,  Protection  is  not  less  efiica- 
cious — I  would  say,  is  far  more  efficacious — to  circumscribe 
and  crush,  than  to  sustain  and  encourage.  Once  recognized  as 
governing  the  policy  of  a  country,  every  industry  which  can 
make  out  a  plausible  case  becomes  entitled  to  its  supposed 
benefits,  and  industries  engaged  in  raising  raw  material  are  as 
anxious  to  be  protected  as  others.  Accordingly,  in  the  United 
States,  as  we  have  seen,  coal,  iron,  lumber,  and  leather  are  all 
loaded  with  heavy  import  duties.  But  what  is  the  conse- 
quence? Just  this,  that  American  manufacturers  are  thus  de- 
prived of  the  advantage  they  would  naturally  possess  of  ob- 
taining their  raw  material  cheap.  They  are  placed  at  a  dis- 
advantage in  relation  to  manufacturers  in  Europe  precisely 
where  under  free  trade  their  position  would  be  strongest:  a 
necessity  for  Protection  is  created  which  could  never  arise 
under  natural  conditions  of  trade :  in  this  way  Protection  in 
the  end  becomes  its  own  Nemesis,  and  the  vicious  circle  is 
complete. 

I  have  now,  I  trust,  shown  that,  at  all  events  in  such  coun- 
tries as  the  United  States,  Protection  is  not  needed  to  secure 
an  extensive  diversity  in  the  national  industries.  And  when 
we  further  take  account  of  an  influence  to  which  I  have  not 
yet  referred — an  influence  inseparable  from  the  maintenance 
of  a  protective  sj^stem — I  think  I  may  even  venture  to  ques- 
tion whether  a  single  industry  of  importance  is  kept  alive  by 
Protection  in  the  United  States  which  would  not  equally  ex- 
ist there  in  a  healthier  condition  in  its  absence.  I  refer  now 
to  the  effect  of  Protection  on  the  morale  of  industry.  When 
once  the  industrial  classes  of  a  country  have  been  taught  to 
look  to  the  legislature  to  secure  them  against  the  competition 
of  rivals,  they  arc  apt  to  trust  more  and  more  to  this  support, 
and  less  and  less  to  their  own  skill,  ingenuity,  and  economy  in 


THE  POLITICAL  ARGUMENT.  403 

conducting  their  business.  The  inevitable  result  is  that  indus- 
try becomes  unprogressive  wherever  it  is  highly  protected.* 
It  was  so  in  France  in  the  days  previous  to  the  commercial 
treaty,  and  it  is  so  now  in  the  United  States,  as  may  be  learn- 
ed from  Mr.  Wells's  Reports.  "  The  French  manufacturers," 
says  M.  Chevalier,  "  if  not  all,  at  least  a  large  number  of  them, 
had,  anterior  to  the  treaty  of  commerce,  a  serious  disadvantage 
— that  of  old  and  defective  machinery,  which  augmented  the 
cost  of  production.  This  w\^s  due  to  prohibition,  which  pre- 
vented the  manufacturers  from  feeling  the  spur  of  foreign 
competition,  and  dispensed  them  from  the  necessity  of  perfect- 
ing indefinitely,  and  without  delay,  their  machinery  and  their 
processes.  The  treaty  of  commerce  aroused  them  from  this 
apathy  as  if  an  alarm-bell  had  sounded.     There  was  a  general 

*  This  is  tlie  conclusive  reply  to  the  plea  sometimes  urged  in  iixvor  of  Protec- 
tion in  young  communities  as  supplying  a  shelter  to  nascent  industries  until  they 
have  struck  root  and  are  able  to  endure  foreign  competition.  "We  all  know  the 
passage  in  which  Mr.  Mill  has  given  a  sanction  to  Protection  when  employed 
under  such  circumstances,  and  the  use  that  has  been  made  of  it  in  some  of  our 
colonies.  It  would  have  been  well  at  least  if  those  who  had  relied  on  this  obiter 
dictum  of  a  great  writer  had  taken  note  of  the  strict  limitations  with  which  he  ac- 
companied its  utterance.  With  or  without  sucli  limitations,  however,  I  can  not 
but  think  that  tlie  position  is  untenable.  If  Protection  tended  to  develop  indus- 
trial virtues,  and  thus  to  qualify  for  independence,  one  could  understand  that  it 
might  be  usefully  employed  for  a  time  under  the  strict  limitations  laid  down  by 
Mr.  Mill ;  but  inasmuch  as  its  tendency  is  exactly  the  reverse  of  this,  inasmuch  as 
Protection  invariably  begets  a  need  for  Protection,  it  is  not  easy  to  see  how  its 
adoption  could  under  any  circumstances  forward  the  object  in  view.  How  little 
those  in  the  United  States  who  have  once  placed  themselves  in  the  leading-strings 
of  Protection  are  inclined  to  dispense  with  these  helps  may  be  seen  from  the  fol- 
lowing remark  of  ^Ir.  Wells:  "Tiiere  has  never  been  an  instance  in  tlie  histoiy 
of  the  country  where  the  representatives  of  sucii  [infant]  industries,  who  have  en- 
jojed  Protection  for  a  long  series  of  years,  have  been  willing  to  submit  to  a  re- 
duction of  the  tariff,  or  have  proposed  it.  But,  on  the  contrary,  their  demands  for 
still  higher  and  higher  duties  are  insatiable  and  never  intermitted."  And  he  pro- 
ceeds to  illustrate  his  remark  by  some  striking  examples.  ('"Cobden  Club  Es- 
says," Second  Series,  p.  533.) 


404  FREE  TRADE  AND  PROTECTION. 

renewing  of  machinery  in  the  numerous  factories  which  were 
badly  or  imperfectly  furnished.  Each  wished  to  place  himself 
in  this  respect  on  a  level  with  England.  The  treaty  of  com- 
merce encouraged  this  renovation  by  the  lowering  of  duties 
upon  every  thing  which  enters  into  the  composition  of  work- 
shoj^  machinery ;  and  the  Treasury  even  advanced  to  a  certain 
number  of  establishments  considerable  sums,  in  all  40,000,000 
of  francs,  or  $8,000,000.  French  industrj^  has  drawn  from 
this  transformation  of  its  machinery  {materiel)  a  new  force,  of 
which  it  makes  proof  every  day,  and  this  is  a  reason  why  to- 
day, face  to  face  with  foreign  competition,  it  has  a  confidence 
which  it  did  not  know  before."* 

To  this  statement  of  M.  Chevalier's  I  will  only  add  a  single 
example,  taken  from  Mr.  Wells's  Eeport:  "In  the  summer  of 
1867,  while  studying  the  industries  of  Europe,  the  Commis- 
sioner visited  a  factory  the  products  of  which  had  for  many 
years  found  an  extensive  market  in  the  United  States.  The 
product  being  staple,  and  the  industry  one  that  it  was  exceed- 
ingly desirable  should  be  extended  in  the  United  States,  the 
Commissioner  studied  the  process  of  manufacture  with  great 
care,  from  the  selection  of  the  raw  material  to  the  packing  of 
the  finished  product;  the  rates  of  wages;  the  intelligence  of 
the  operatives,  and  the  hours  of  labor.  When  his  investiga- 
tion was  completed,  the  Commissioner  said  to  the  foreign  man- 
ufacturer— a  man  whose  name  is  a  household  word  in  his  own 
country  for  integrity  and  philanthropy — 'The  duty  on  the  im- 
port of  these  articles  into  the  United  States  is,  respectively,  85 
per  cent,  ad  valorem.,  and  30  per  cent,  ad  valorem  and  20  cents 
per  pound;  if  you  have  given  me  your  prices,  products  of  ma- 
chinery, and  cost  of  labor  correctly,  I  do  not  well  see  how  you 
could  export  your  fabrics  to  the  United  States,  even  if  there 
was  substantially  no  duty,  as  the  advantage  of  raw  material  is 

*  Ciiioted  from  :i  letter  in  tlie  New  York  World,  November  28,  1873. 


THE  POLITICAL  ARGUMENT.  405 

mainly  upon  our  side.'  '  I  am  sometiiTies  at  a  loss  myself  to 
account  for  the  course  of  trade,'  was  the  reply ;  '  but  perhaps 
it  will  help  you  to  a  conclusion  if  I  tell  you  that  some  time 
ago,  finding  ourselves  pressed  with  German  competition,  we 
threw  out  our  old  machinery,  and  replaced  it  with  a  new  and 
improved  pattern ;  and  the  machinery  by  us  rejected  was  sold 
to  go  to  the  United  States.'  To  complete  the  story,  it  is  only 
necessary  for  the  Commissioner  to  add  that  the  owners  of  this 
second-hand  machinery  have  since  its  importation  demanded 
and  received  an  increased  protection  on  its  products."* 

I  may  now  sum  up  the  general  result  of  this  latter  portion 
of  my  argument:  (1)  As  regards  the  industries  of  raw  prod- 
uce, Protection  does  not  call  into  existence  a  single  branch  of 
production  which  would  not  equally  have  existed  under  free 
trade ;  it  merely  alters  the  proportions  in  which  such  indus- 
tries are  carried  on,  hindering  their  natural  and  healthy  devel- 
opment :  (2)  in  the  domain  of  manufacturing  industry  it  is 
equally  inefficacious  as  a  means  of  creating  variety  in  industri- 
al pursuits ;  for  if  on  the  one  hand  it  secures  a  precarious  exist- 
ence for  certain  kinds  of  manufactures,  on  the  other,  by  artifi- 
cially enhancing  the  price  of  raw  material,  it  discourages  other 
kinds  which  in  its  absence  would  grow  and  flourish :  while  (8) 
over  and  above  all  these  injurious  effects,  it  vitiates  the  indus- 
trial atmosphere  by  engendering  lethargy,  routine,  and  a  reli- 
ance on  legislative  expedients,  to  the  great  discouragement  of 
those  qualities  on  which,  above  all,  successful  industry  mainly 
depends — energy,  econom}'',  and  enterprise. 

To  conclude,  having  regard  to  the  geographical  position, 
extent  of  territory,  and  extraordinary  natural  resources  of  the 
United  States,  as  well  as  to  the  character  of  its  people,  trained 
in  all  the  arts  of  civilization,  and  distinguished  beyond  others 
by  their  eminent  mechanical  and  business  talents,  there  seems 


j\Ir.  Wells's  Keport  for  1868,  p.  74. 


406  FliEE   TRADE  AXD  PEOTECTIOX. 

no  reason  that  they  should  not  take  a  position  of  commanding 
influence  in  the  world  of  commerce — a  position  to  which  no 
other  people  on  earth  could  aspire.  But,  to  do  this,  they  must 
eschew  the  miserable  and  childish  jealousy  of  foreign  competi- 
tion which  is  now  the  animating  principle  of  their  commercial 
policy.  If  they  desire  to  command  a  market  for  their  products 
in  all  quarters  of  the  world,  they  must  be  prepared  to  admit 
the  products  of  other  countries  freely  to  their  own  markets, 
and  must  learn  to  seek  the  benefits  of  international  trade,  not 
in  the  vain  ambition  of  underselling  other  countries,  and  so 
making  them  pay  tribute  in  gold  and  silver  to  the  United 
States,  but  in  that  which  constitutes  its  proper  end  and  only 
rational  purpose — the  greater  cheapening  of  commodities  and 
the  increased  abundance  and  comfort  which  result  to  the  whole 
familv  of  mankind. 


CHAPTER  V. 

ON-  SOME  JILYOIi  TOPICS. 

§  1.  I  PROPOSE  to  devote  this  concluding  chapter  on  Inter- 
national Trade  to  the  consideration  of  some  topics  which  seem 
to  fall  more  easily  under  this  than  under  other  headings  — 
topics  more  or  less  involved,  and  in  general  tacitly  decided  in 
one  sense  or  another,  in  most  commercial  and  monetary  dis- 
cussions, but  the  current  ideas  respecting  which  are  by  no 
means  in  accordance  with  the  main  principles  of  international 
trade  as  these  have  been  developed  in  the  foregoing  pages. 

The  first  of  those  questions  to  which  I  would  ask  the  read- 
er's attention  is  the  following:  What  is  the  interest  of  a  coun- 
try in  the  scale  of  its  general  prices?  Is  it  for  the  advantage 
of  the  people,  as  a  whole,  that  the  scale  should  be  high  or  low? 
and,  assuming  that  they  have  an  interest  in  either  alternative, 
what  is  the  nature  of  the  advantage,  and  what  are  its  limits? 
A  moment's  reflection  will  enable  us  to  take  at  least  one  step 
toward  the  solution  of  our  problem :  the  interest  involved, 
whatever  be  its  character  and  extent,  can  only  be  real  so  far 
forth  as  the  high  or  low  scale  of  prices  is  not  universal — so  far 
forth,  that  is  to  say,  as  it  is  not  shared  in  the  same  degree  by 
all  countries.  A  country  can  have  no  permanent  interest  in 
an  advance,  or  in  a  fall  of  prices,  which  embraces  the  whole 
commercial  world.  Such  a  change  leaves  the  purchasing- 
power  of  each  country  in  relation  to  every  other  precisely 
where  it  was  before ;  reciprocal  demand,  therefore,  would  con- 
tinue unaffected,  and,  by  consequence,  international  values,  and 
all  interests  that  depend  on  that  relation.      But  where  the 


408  ON  SOME  MINOR  TOPICS. 

advance  or  fall  is  not  general — where  the  high  or  low  scale  of 
prices  is  confined  to  one,  or  to  a  few  countries  —  it  is  not  at 
once  apparent  how  it  may  affect  the  interest  of  those  concerned. 
I  ought  here,  perhaps,  to  refer  to  a  maxim  advanced  by 
some  writers  on  monetary  questions  which,  if  well  founded, 
would  seem  to  preclude  the  existence  of  the  phenomenon,  the 
character  of  which  I  propose  to  discuss.  It  is  held  by  the 
writers  to  whom  I  refer  that  the  value  of  gold  is,  and  must 
ever  be,  "the  same  all  the  world  over."*  Now  if  this  be  so, 
as  the  value  of  gold  is  merely  another  expression  for  the  gold 
prices  of  commodities,  it  must  follow  that  a  high  or  a  low  scale 
of  general  prices  existing  in  any  country,  and  not  shared  by 
every  other,  is  an  impossible  occurrence.  As  there  is  no  local 
value  of  gold,  so  there  can  be  no  local  scale  of  prices.  I  have 
no  hesitation,  however,  in  expressing  my  opinion  that  the 
doctrine  in  question,  with  whatever  confidence  advanced,  is 
absolutely  destitute  of  foundation.f     The  truth  on  the  subject 

*  It  is  probable  that  by  "the  value  of  gold"  the  writers  in  question  mean  to 
designate  its  value  on  loan  as  well  as  its  exchange  value.  But  a  reference  to  the 
rates  of  interest  prevailing  at  any  given  time  in  the  principal  money  markets  of 
the  world  will  suffice  at  once  to  refute  this  part  of  the  doctrine. 

t  It  has  certainly  no  support  from  any  writer  of  authority.  Ricardo  says 
broadly:  "The  value  of  money  is  never  the  same  in  any  two  countries,  depend- 
ing as  it  does  on  relative  taxation,  on  manufacturing  skill,  on  the  advantages  of 
climate,  natural  productions,  and  many  other  causes."  He  adds  —  and  the  re- 
mark may  possibly  help  to  clear  up  the  confusion  of  thought  in  which  the  maxim 
I  am  combating  has  originated — "This  higher  value  of  money  [in  a  countr}'  ex- 
celling in  manufactures]  will  not  be  indicated  by  the  exchange :  bills  may  con- 
tinue to  be  negotiated  at  par,  although  tlie  prices  of  corn  and  labor  should  be  10, 

20,  or  .30  per  cent,  liigher  in  one  coimtry  tluin  in  anotiier "VVlien  each 

country  has  precisel}'  the  qtmntity  of  money  which  it  ought  to  have,  money  will 
not,  indeed,  be  of  the  same  value  in  each,  for  witli  respect  to  many  commodities 
it  may  differ  ;">,  10,  or  even  20  per  cent.,  but  the  exchange  will  be  at  par.  One 
hundred  pounds  in  England,  or  the  silver  whidi  is  in  £100,  will  purcliase  a  bill 
of  £100,  or  an  equal  quantity  of  silver  in  France,  Spain,  or  Holland." — "  Kicar- 
do's  Works,"  pp.  81-84. 


HIGH  AND  LOW  PRICES.  409 

seems  to  me  to  be  as  follows:  among  countries  commercially 
connected  there  is  a  large  class  of  commodities  —  all  those, 
namely,  which  constitute  the  great  staples  of  commerce,  such 
as  corn,  flour,  tea,  sugar,  metals,  and  most  raw  materials  of 
industry — of  which  the  prices  can  not  vary  much  in  different 
localities.  As  a  rule  the  difference  of  prices  will  not  be  great- 
er than  the  cost  of  carriage  between  the  countries  of  produc- 
tion and  consumption,  always,  of  course,  excepting  the  case 
where  such  articles  come  under  the  operation  of  local  fiscal 
laws.  In  the  exchange  for  commodities  of  this  description,  the 
value  of  gold,  though  not  the  same  all  the  world  over,  does 
not  greatly  vary  within  the  range  of  general  commerce.  But 
besides  the  commodities  which  form  the  staples  of  commerce 
there  are  those  which,  through  unsuitableness  for  distant  traf- 
fic, or  owing  to  same  other  obstacle,  do  not  enter  into  inter 
national  trade.  With  regard  to  these,  there  is  nothing  to  pre 
vent  the  widest  divergence  in  their  gold  prices,  or,  therefore, 
in  the  value  of  gold  in  relation  to  them,  not  merely  in  remote 
quarters  of  the  world,  but  sometimes  even  in  localities  within 
the  same  country  ;  and  the  class  of  goods  to  which  this  descrip- 
tion applies — it  will  vary  in  extent  with  the  situation  of  each 
country  and  the  means  of  communication  at  its  command — far 
from  being  insignificant,  must  under  all  circumstances  include 
some  of  the  most  important  articles  of  general  consumption. 
To  perceive  this,  it  is  only  necessary  to  remember  that  the 
group  includes  the  items  of  house  accommodation,  meat,  and  a 
large  proportion  of  those  things  which  fall  under  the  head  of 
"provisions" — a  list  which  would  have  to  be  greatly  enlarged 
if  we  had  to  deal  with  countries  lying  aside  from  the  leading 
thoroughfares  of  commerce,  or  in  which  the  means  of  commu- 
nication have  been  imperfectly  developed. 

It  is  not  true,  therefore,  that  gold  is  of  the  same  value  "all 
the  world  over."  On  the  contrary,  it  varies  in  value  in  differ- 
ent countries,  and  sometimes  in  different  localities  within  the 


410  OX  SOME  MIXOB  TOPICS. 

same  country,  in  some  degree  in  relation  to  almost  all  com- 
modities, but,  in  relation  to  a  numerous  and  important  class  of 
commodities,  in  a  very  considerable  degree,  and  this,  not  mere- 
ly as  a  temporary  fluctuation,  but  j)ermanently,  as  a  normal 
state  of  things ;  and  the  problem  we  have  now  to  consider  is, 
whether,  the  case  being  so,  it  is  advantageous  for  the  inhabit- 
ants of  a  country  that  the  scale  of  its  prices,  within  the  possible 
limits  of  permanent  divergence,  should  be  high  or  low  in  rela- 
tion to  the  cosmopolitan  level. 

The  majority  of  those  who  write  or  speak  on  commercial 
questions  would,  I  imagine,  have  little  hesitation  in  pronoun- 
cing in  favor  of  the  former  alternative ;  and  plainly  the  most 
obvious  appearances  support  this  view.  A  high  scale  of  prices 
and  large  accumulated  wealth  for  the  most  part  go  together, 
while  low  prices  are  the  incident  of  districts  remote  from  the 
main  current  of  civilization,  and  in  general  poor  and  barbar- 
ous. If  we  inquire,  however,  as  to  the  nature  of  the  connection 
between  the  phenomena  in  each  case,  the  answer  does  not  by 
any  means  lie  upon  the  surface.  Let  it  be  remembered  that 
a  difference  in  local  prices,  if  considerable  and  permanent,  can 
only  exist  in  the  case  of  commodities  which  can  not  be  made 
the  subject  of  foreign  commerce.  High  prices,  therefore,  can 
not  serve  us  in  our  dealings  with  foreign  nations,  and  it  is  not 
by  any  means  clear  how  the  people  of  a  country  can  be  profit- 
ed by  exchanging  their  goods  among  themselves  on  a  high 
pecuniary  scale.  Moreover  it  is  evident  that,  with  regard  to 
those  commodities  which  do  enter  into  foreign  commerce,  it  is 
the  interest  of  each  competing  nation  that  their  prices  should 
be  relatively  as  low  as  possible ;  this  being  the  condition  of 
commanding  a  sale  for  them  in  neutral  markets.  Granting, 
therefore,  that  high  prices  and  accumulated  wealth  on  the  one 
hand,  and  low  prices  and  poverty  on  the  other,  are  generally 
coincident  phenomena,  we  have  yet  to  discover  wherein  con- 
sists the  bond  that  connects  them. 


CHEAP  GOLD.  411 

The  solution  of  the  problem  is  contained  in  the  following 
statement :  What  a  nation  is  interested  in  is,  not  in  having  its 
prices  high  or  low,  but  in  having  its  gold  cheap — understand- 
ing by  cheapness*  not  low  value,  but  low  cost — a  small  sacri- 
fice of  ease  and  comfort ;  and  it  generally  happens  that  cheap 
gold  is  accompanied  by  a  high  scale  of  prices.  I  say  "gener- 
ally happens,"  because  it  by  no  means  follows  as  a  necessary 
consequence  that  the  two  phenomena  should  go  together. 
Gold  may  be  cheap,  and  prices,  at  the  same  time,  low,  as  a  lit- 
tle reflection  will  easily  convince  us.  The  range  of  prices  that 
actually  prevails  in  a  country  is,  speaking  broadly,  the  result- 
ant of  two  conditions — the  cost  at  which  that  country  produces 
or  obtains  its  gold,  and  the  cost  at  which  it  produces  or  obtains 
commodities.  Fluctuations  and  disturbing  causes  apart,  the 
gold  and  the  commodities  will  exchange  for  each  other  in  pro- 
portion to  their  costs ;  and  cheap  gold,  therefore,  will  be  the 
concomitant  of  high  prices,  only  in  so  far  as  the  cheapness  in- 
cident to  the  gold  is  not  shared  by  the  other  products  of  in- 
dustry. The  cheapness  of  gold,  for  example,  in  Australia  does 
not  occasion  a  high  price  of  meat,  of  flour,  of  wool,  of  tallow, 
of  hides,  or  of  many  other  articles  in  that  country,  because  the 
cost  of  producing  those  articles  there  is  also  very  low.  Any 
of  them  can  be  purchased  in  Australia  at  as  low  a  price  as  in 
Europe :  many  of  them,  meat  and  wool,  for  example,  at  consid- 
erably lower  prices.  It  is  thus  evident  that  cheap  gold  is  no 
necessary  concomitant  of  a  high  scale  of  prices.  We  must, 
therefore,  distinguish  between  the  two  things;  and,  so  distin- 
guishing, I  have  now  to  show  that  the  interest  of  a  nation  lies, 

*  This  is,  I  admit,  a  departure  from  ordinary  usage,  "cheap"  being  more  com- 
monly applied  to  price  or  value  than  to  cost  of  production.  But  we  much  need  a 
word  to  express  low  cost  as  distinguished  from  low  price  or  value,  and  it  seems  to 
me  that  "cheapness"  may  conveniently  be  appropriated  to  this  purpose.  At  all 
events,  having  hud  notice  of  the  sense  in  whicli  I  use  tiie  word,  the  reader  will  not 
be  misled. 


412  ON  SOME  MINOR  TOPICS. 

not  in  having  its  prices  high,  but  in  having  its  gold  cheap ; 
and  that  it  is  only  in  so  far  as  high  prices  are  an  indication  of 
cheap  gold,  and  low  prices  an  indication  of  dear  gold,  that  ei- 
ther can  be  considered  as  furnishing  any  presumption  wheth- 
er in  favor  of  or  against  the  wealth  or  well-being  of  a  com- 
munity. 

As  I  remarked  just  now,  the  problem  we  are  considering 
can  only  arise  with  reference  to  relative  prices.  A  rise  or  fall 
of  prices  shared  by  all  nations  equally  can  not  affect  the  inter- 
est of  any;  and  similarly  the  cheapness  or  dearness  of  gold — 
considered  in  the  capacity  in  which  we  are  now  regarding  it, 
as  the  instrument  of  general  commerce,  not  as  a  commodity 
intended  for  consumption — is  only  of  importance  in  so  far  as 
it  is  not  universal.  Gold  cheapened  everywhere  and  in  the 
same  degree,  would  mean,  other  things  being  the  same,  an 
equal  and  universal  rise  of  prices,  and  there  would  obviously 
be  no  advantage  in  obtaining  our  gold  at  a  lower  cost  if  we 
were  compelled  to  give  proportionally  more  of  it  for  all  that 
we  required.  But  assuming — what  is  simple  matter  of  foct — 
that  the  cost  at  which  different  nations  obtain  their  gold  is  dif- 
ferent— that  the  cost  may  be  reduced  in  some  countries  with- 
out undergoing  a  corresponding  reduction  in  others — then  a 
manifest  advantage  arises  to  a  nation  from  the  cheapness  of  its 
gold;  for  just  in  proportion  as  it  obtains  its  gold  at  small  cost 
— by  a  small  expenditure  of  labor  and  abstinence — it  will  ob- 
tain at  small  cost  all  its  imported  commodities.  The  advantage 
would,  indeed,  be  confined  to  its  foreign  trade.  In  domestic 
exchanges  prices  would  adapt  themselves  to  the  cheapened 
cost  of  money,  and  in  this  field  of  its  activity  neither  good  nor 
evil  would  result  for  the  nation  as  a  whole;  but  in  its  deal- 
ings with  foreign  nations  it  would  be  otherwise.  In  relation  to 
them,  its  position,  as  commanding  gold  on  terms  of  exception- 
al cheapness,  would  be  one  of  vantage,  and  would  enable  it 
through  this  cheapened  medium  to  obtain  from  them,  on  terms 


CHEAP  GOLD.  413 

correspondingly  advantageous,  all  that  they  are  capable  of  sup- 
plying. 

Such  is  the  nature  of  the  advantage  which  a  country  derives 
from  the  relative  cheapness  of  its  gold ;  and,  as  I  have  already 
remarked,  in  old  countries  cheap  gold  is  generally  accom- 
panied by  a  high  scale  of  prices  for  all  commodities  not  fall- 
ing within  the  range  of  international  trade.  To  exhibit  the 
grounds  of  this  connection  we  may  take  the  case  of  Great 
Britain.  The  cost  of  gold  is  lower  in  Great  Britain  than  in 
any  country  in  Europe,  or,  we  may  say  broadly,  than  in  any 
in  the  world,  America  and  Australia  excepted.  The  evidence 
of  this  is  to  be  found  in  the  scale  of  our  industrial  remunera- 
tion measured  in  gold.*  To  what  is  the  fact  to  be  attributed  ? 
To  this,  that  we  possess  in  our  coal,  iron,  and  other  mineral 
fields,  combined  with  the  skill  and  energy  of  our  inhabitants, 
superior  resources  to  those  possessed  by  other  countries  for 
the  production  of  certain  manufactures  in  extensive  demand 
throughout  the  world.  Producing  such  manufactures  at  less 
cost  than  they  can  be  produced  at  by  other  nations,  and  find- 
ing for  them  an  extensive  demand  throughout  the  world,  we 
are  enabled  at  once  to  undersell  other  nations  in  neutral  mar- 
kets, and  yet  at  the  same  time  to  obtain  for  our  products  a 
price  which  bears  a  larger  proportion  to  their  cost  of  produc- 
tion— to  the  labor  and  abstinence  employed  in  producing  them 
— than  the  price  obtained  by  foreign  nations  for  their  products 
bears  to  the  cost  of  such  products.  A  given  expenditure  of 
labor  and  abstinence  in  this  country  thus  enables  us  to  com- 
mand a  larger  result  in  gold  than  the  same  expenditure  would 
enable  foreign  nations  to  command.  In  other  words,  we  ob- 
tain our  gold  cheaper,  while,  as  involved  in  this  result,  the 
scale  of  industrial  remuneration,  measured  in  gold,  is  higher 


*  This  part  of  the  problem  has  been  ably  worked  out  by  Mr.  Senior,  in  liis  well- 
known  Essay,  already  referred  to,  "On  the  Cost  of  obtaining  Money." 


414  ON  SOME  MIXOE  TOPICS. 

with  us  than  with  them.  All  this,  I  say,  is  the  consequence  of 
the  great  and  exceptional  advantages  possessed  by  this  coun- 
try in  certain  departments  of  industry.  We  have  here  the 
explanation  of  our  cheap  gold,  but  not  of  our  high  scale  of 
prices.*  The  explanation  of  the  latter  phenomenon  lies  in  the 
fact  that  those  industrial  advantages  are  not  general,  but  con- 
fined to  a  few  departments  of  production.  Supposing  that 
they  extended  over  the  whole,  or  the  greater  portion,  of 
our  industrial  field,  our  position  would  resemble  that  of  some 
of  the  Australian  colonies ;  and  we  should,  along  with  cheap 
gold,  have  a  low  scale  of  general  prices.  In  fact,  however,  the 
case  is  otherwise.  We  are  in  the  position  of  an  old  country. 
Our  land  has  all  long  since  been  appropriated,  and,  to  sup- 
ply us  with  food,  even  very  inferior  qualities  of  soil  have 
been  brought  under  the  plow,  and  are  cultivated  at  high  cost. 
Food  and  provisions  of  all  sorts,  consequently,  are  dear ;  so  also 
is  house  accommodation,  and  in  general  all  those  things  which 
can  not  easily  be  made  the  subject  of  international  commerce. 
In  these  respects  w^c  enjoy  no  special  advantages  over  other 
nations  :  in  obtaining  gold,  however,  as  has  been  shown,  we  do 
possess  such  advantages.  Gold,  therefore,  with  us  exchanges 
in  larger  proportion  against  all  this  class  of  commodities  than 
in  other  countries ;  but  this  is  only  in  other  words  to  say  that 
the  scale  of  prices  over  this  area  of  exchange  is  higher  here 
than  in  them.  High  prices,  thus,  in  England  are  a  conse- 
quence of  cheap  gold ;  and  our  cheap  gold  enables  us  to  com- 
mand, on  terms  proportionally  favorable,  the  products  of  other 
countries.  But  we  should  equally  enjoy  this  advantage,  while 
we  should  also  enjoy  others  in  addition,  if,  having  our  gold  as 
cheap  as  now,  our  scale  of  prices  was  at  the  same  time  as  low 
as  in  other  countries ;  for  this  would  imply  that  our  industry 


*  Points  which  Mr.  Senior  omitted  to  discriminate,  as  Mr.  Mill  has  pointed  out. 
Sec  'Trinciplcs  of  Political  Economy,"  vol.  ii.,  p.  157. 


V 


GAIX  OX  FOREIGN  TRADE.  415 

was  as  productive  in  all  its  departments  as  in  those  through 
which  we  obtain  our  gold.  It  can  not,  therefore,  be  said  that 
high  prices  are  in  themselves  advantageous  to  a  country : 
nevertheless,  in  so  far  as  they  are  an  indication  of  cheap  gold, 
they  are  an  evidence  that  the  country  in  which  they  exist  oc- 
cupies a  position  of  vantage  in  the  world  of  commerce,  and 
high  prices  will  therefore,  under  such  .circumstances,  generally 
be  accompanied  with  commercial  prosperity  and  large  accumu- 
lated wealth.  There  is  just  one  exception  to  this  statement. 
It  occurs  where  the  scale  of  prices  is  raised  through  the  oper- 
ation of  a  protective  tariff.  Gold  might,  in  this  case,  be  cheap, 
and  yet  none  of  the  advantages  of  cheap  gold  would  follow ; 
for,  as  I  have  explained,  it  is  only  through  foreign  trade  that 
those  advantages  are  realized,  and  just  in  so  far  as  Protection 
is  operative,  the  country  maintaining  it  will  be  excluded  from 
foreign  trade.  Countries,  therefore,  in  which  prices  are  kept 
high  by  Protection,  are  in  the  singular  position  of  securing 
cheap  gold,  subject  to  the  condition  that  it  shall  not  be  spent 
in  the  only  market  where  advantage  would  arise  from  its 
cheapness. 

§  2.  So  much  I  have  thought  it  worth  while  to  say  on 
the  subject  of  high  and  low  prices.  I  now  turn  to  another 
topic,  also  much  implicated  in  commercial  discussions,  and  on 
which  some  strange  notions  would  seem  to  be  afloat.  That  a 
nation  is  enriched  by  its  foreign  trade  is  mostly  taken  for 
granted,  and  with  good  reason ;  but  what  is  the  nature  of  the 
gain?  and  by  what  standard  are  we  to  measure  its  amount? 
"We  are  all  familiar  with  the  doctrine  of  the  Balance  of  Trade, 
according  to  which  celebrated  theory  the  gain  on  foreign  trade 
was  measured  by  the  excess  of  exports  over  imports,  and  con- 
sisted in  the  gold  and  silver  which  were  supposed  to  come 
from  foreign  countries  in  liquidation  of  the  balance.  That 
view  is  now,  I  suppose,  pretty  generally  abandoned.     But  I 


416  ON  SOME  MIXOE  TOPICS. 

have  observed  of  late,  both  in  the  press  and  among  parlia- 
mentary speakers,  a  curious  modern  inversion  of  the  ancient 
doctrine.  I  have  seen  it  laid  down,  with  much  exultation  over 
the  ignorance  of  our  ancestors,  that  the  gain  in  our  foreign 
commerce,  instead  of  being  measured,  as  was  formerly  thought, 
by  the  excess  of  exports  over  imports,  is,  on  the  contrarj^  meas- 
ured by  the  excess  of  imports  over  exports.  A  contributor 
to  an  important  provincial  paper,  writing  some  time  since  un- 
der the  influence  of  this  notion,  calculated  that  the  gain  of  En- 
gland from  her  foreign  trade  amounted  to  about  £100,000,000 
sterling;  this  being  about  the  amount  by  which  her  imports 
in  that  year  exceeded  her  exports.  If  I  mistake  not,  it  was  a 
part  of  the  doctrine  that  this  sum  represented  the  profits  of  our 
merchants  engaged  in  foreign  trade.  The  reader  who  has  fol- 
lowed the  explanations  given  in  a  former  chapter  of  the  causes 
governing  the  relation  of  exports  and  imports  in  the  external 
trade  of  countries  will  not  need  any  further  refutation  of  this 
extravagant  notion.  I  may  just  add,  as  a  sufficient  reduciio  ad 
ahsurdum,  that,  inasmuch  as  the  external  trade  of  many  pros- 
perous communities  exhibits  a  constant  excess  of  exports  over 
imports,  it  would  follow  from  this  view  that  all  such  communi- 
ties are  undergoing  a  steady  course  of  impoverishment,  and 
that  those  of  their  inhabitants  who  engage  in  foreign  trade 
only  incur  losses  on  their  investments.  Such  speculations 
show  how  little  the  Political  Economy  of  some  among  us  is  in 
advance  of  the  ideas  of  the  seventeenth  century. 

Another  method  by  which  it  is  frequently  attempted  to  es- 
timate the  gain  on  foreign  trade  proceeds  on  the  assumption 
that  such  gain  is  identical  with  the  mercantile  profits  accruing 
upon  the  capital  thus  invested.  This  view  is  only  less  absurd 
than  the  former  in  not  identifying  the  amount  of  mercantile 
profit  with  the  balance  on  the  external  trade.  According  to  it, 
if  we  suppose  the  total  capital  embarked  in  the  foreign  trade 
of  Great  Britain  to  be  £500.000,000,  and  the  rate  of  profit  £10 


GAIN  ON  FOREIGN  TRADE.  417 

per  cent,  it  would  follow  that  the  gain  to  the  country  upon 
her  foreign  trade  would  be  represented  by  £50,000,000  ster- 
ling. This  way  of  regarding  the  subject  is,  I  imagine,  suffi- 
ciently prevalent  among  our  mercantile  classes ;  but  it  only  af- 
fords a  proof  the  more  how  very  little  those  classes  have  yet 
contrived  to  appropriate  of  the  elementary  truths  of  the  sci- 
ence in  whose  name  they  so  often  speak.  The  notion  betrays 
a  fundamental  misconception  of  the  nature,  not  merely  of  for- 
eign trade,  but  of  all  trade,  and  of  the  end  and  purpose  for 
which  it  exists.  "Consumption,"  says  Adam  Smith,  "is  the 
end  and  purpose  of  all  production."  .  .  .  .  "  The  maxim,"  he 
observes,  "  is  so  perfectly  self-evident  that  it  would  be  absurd 
to  attempt  to  prove  it."  Not  less  self-evident  is  it  that  the  end 
and  purpose  of  all  trade  is  to  cheapen  production,  and  so  to 
minister  more  effectually  to  the  ultimate  end — the  need  of  the 
consumer.  But  the  gain  upon  trade  must  surely  consist  in  the 
degree  in  which  it  fulfills  its  proper  end — must,  therefore,  con- 
sist, not  in  the  profits  of  traders,  but  in  the  advantage  which  it 
brings  to  those  for  whose  behoof  the  trader  exists.  It  is  true 
the  trader's  motive  when  engaging  in  trade  is  to  make  a  profit; 
but  not  the  less  is  his  raison  detre  as  a  trader  to  minister  to  the 
wants  of  others.  He  must  have  his  profit,  or  he  will  cease  to 
trade ;  but  his  profit,  though  an  incident  of  the  good  resulting 
from  his  office,  is  not  the  measure  of  it.  The  measure  of  the 
service  which  he  renders — of  the  importance  of  his  function — 
is  not  this,  but  the  benefit  he  confers  on  the  community  whose 
servant  he  is;  and  this  benefit  is  great  in  proportion  to  his 
success  in  serving  the  consumer ;  in  other  words,  in  cheapening 
commodities — in  diminishing  the  obstacles  which  exist  to  the 
satisfaction  of  human  wants.  Nothing,  therefore,  can  betray  a 
more  profound  misconception  of  the  true  nature  of  trade  and 
the  purpose  for  which  it  exists  than  to  represent  the  advan- 
tages derivable  from  it  as  measured  by  the  profits  of  the  agents 
who  carry  it  on.     It  would  be  just  as  reasonable  to  represent 

27 


-fl8  OX  SOME  MINOB   TOPICS. 

the  advantages  of  learning  as  measured  by  the  salaries  of 
teachers. 

What,  then,  is  the  true  criterion  of  the  gain  on  foreign  trade? 
I  reply,  the  degree  in  which  it  cheapens*  commodities,  and  ren- 
ders them  more  abundant.  Foreign  trade  not  merely  supplies 
us  with  commodities  more  cheaply  than  we  could  produce 
them  from  our  own  resources,  but  supplies  us  with  many  com- 
modities which,  without  it,  we  could  not  obtain  at  all.  The  de- 
srree  in  which  it  does  this  is  the  true  criterion  and  measure  of 
the  gain,  but  it  is  a  measure  which  palpably  does  not  admit  of 
being  applied  in  practice.  To  determine  the  amount  or  extent 
of  the  advantage  derivable  from  foreign  trade  is,  and,  I  venture 
to  say,  must  ever  be,  an  absolutely  insoluble  problem — a  truth 
which  will  be  suf&ciently  apparent  if  we  advert  to  some  of  the 
data  on  which  its  solution  depends. 

As  I  have  just  said,  one  portion  of  the  gain  derived  from 
foreign  trade  consists  in  the  supply  it  yields  us  of  commodities 
not  capable  of  being  produced  in  our  own  country.  Great 
Britain,  for  example,  obtains  in  this  way  her  tea  and  sugar; 
and  it  will,  perhaps,  be  thought  that  the  satisfaction  derived 
from  the  consumption  of  these  articles  constitutes  the  gain  to 
the  British  consumer  upon  so  much  of  our  foreign  trade. 
Even  if  this  were  so,  it  is  pretty  evident  that  the  satisfaction 
in  question  is  not  capable  of  quantitative  measurement.  But, 
in  point  of  fact,  the  problem  is  far  more  complicated  than  such 
a  solution  supposes;  for  it  must  not  be  forgotten  that,  in  the 
event  of  our  being  excluded  from  the  countries  which  furnish 
us  with  tea  and  sugar,  we  should  have  at  our  disposal  all  the 
capital  now  employed  in  producing  the  commodities  in  ex- 
change for  which  tea  and  sugar  are  now  obtained.  This  capi- 
tal would  then  be  available  for  the  production  of  substitutes, 

*  The  reader  will  bear  in  mind  the  sense  in  which  I  use  "cheapen" — viz.,  as 
equivalent  to  lowering  cost,  to  reducing  the  sacrifices  involved  in  procuring  a  com- 
inoditv. 


GAIN  ON  FOREIGN  TRADE.  419 

or,  in  case  none  were  forthcoming,  for  the  production  of  other 
things;  and  the  gain  upon  this  portion  of  our  foreign  trade 
would  be  represented  by  the  difference  between  the  advantage 
conferred  on  the  community  by  its  present  supply  of  tea  and 
sugar,  and  that  which  it  would  receive  from  the  substitutes,  or 
other  things,  w^hatever  these  might  be,  which,  in  their  absence, 
we  might  produce  from  our  own  resources.  But,  as  we  have 
no  means  of  measuring  accurately  the  satisfactions  which  we 
at  present  enjoy  from  the  consumption  of  the  articles  in  ques- 
tion, and  still  less  of  measuring  those  which  we  might  derive 
from  such  things  as  in  their  absence  we  might  provide  our- 
selves with,  it  is  evident  that  an  accurate,  or  even  an  approxi- 
mate, determination  of  the  advantages  accruing  to  us  from  our 
foreign  commerce,  so  far  at  least  as  its  function  is  to  furnish  us 
with  articles  we  can  not  ourselves  produce,  is  absolutely  be- 
yond our  reach.  All  we  can  say  with  confidence  is  that  the 
tastes  and  wants  which  are  now  satisfied  through  this  service 
of  foreign  commerce  are  of  a  more  imperious  kind  than  any 
which  our  labor  and  capital,  employed  upon  the  materials  fur- 
nished to  us  by  our  own  country,  are  capable  of  satisfying; 
since,  if  it  were  not  so,  so  much  of  our  foreign  trade  as  it  rep- 
resents would  not  exist.  We  are  thus  justified  in  concluding 
that  there  is  a  real  gain,  but  beyond  this  our  data  do  not  car- 
ry us.  We  are  absolutely  without  the  means  of  estimating  its 
amount. 

So  much  for  one  portion  of  our  foreign  trade.  With  regard 
to  that  more  important  part  of  it,  of  which  the  function  is, 
not  to  supply  us  with  commodities  which  we  are  incapable  of 
producing,  but  to  cheapen  those  which  we  might  produce,  the 
case  might  here  seem  to  be  more  manageable.  In  order  to  as- 
certain the  gain  on  this  part  of  our  trade,  the  data  necessary 
would  be,  first,  a  determination  of  the  cost  at  which  we  actual- 
ly obtain  our  imported  articles  of  the  class  under  consideration  : 
and,  secondly,  a  determination  of  that  at  which  we  could  pro- 


4a0  ON  SOME  MINOR  TOFICS. 

duce  them  if  thrown  upon  our  own  resources.  The  difference 
would  represent  what  we  gain  by  importation,  and  the  data 
might  seem  to  be  not  beyond  our  reach.  When,  however,  we 
come  to  look  closely  at  the  problem,  we  find  ourselves  once 
more  estopped  by  insuperable  difficulties ;  for,  to  take  a  sim- 
ple illustration — on  the  supposition  that  we  import  from  for- 
eign countries  10,000,000  quarters  of  wheat,  how  are  we  to 
estimate  the  gain  which  the  nation  derives  from  obtaining  so 
much  of  its  food  in  this  way  ?  We  know,  indeed,  or  we  may 
ascertain,  at  least  approximately,  the  cost  in  labor  and  absti- 
nence of  the  10,000,000  quarters  of  wheat  which  we  import. 
It  would  be  represented  by  the  cost  of  the  commodities  which 
we  export  to  pay  for  them.  We  know  again,  or  we  may  as- 
certain, the  cost  at  which  wheat  is  now  raised  in  this  country, 
when  grown  under  conditions  which  determine  its  average 
selling  price.  But  what  we  do  not  know,  and  what  we  have 
no  possible  means  of  ascertaining,  is  the  cost  at  which  an  addi- 
tion of  10,000,000  quarters  to  our  present  home  supply  could 
be  produced  from  the  soil  of  Great  Britain.  Inasmuch  as,  in 
order  to  produce  this  quantity,  it  would  be  necessary  to  bring- 
under  cultivation  for  wheat  soils  far  inferior  to  any  now  de- 
voted to  that  purpose,  we  may  be  quite  confident  that  the  cost 
would  be  immensely  greater  than  any  portion  of  our  home 
supply  is  now  raised  at;  immensely  greater,  therefore,*  than 
that  at  which  we  obtain  the  quantity  now  imported ;  but  by 
liow  much  greater  we  are  absolutely  without  the  means  of  de- 
termining— I  might  almost  say,  of  conjecturing  ;  and  it  is  evi- 
dent that  the  same  argument  applies  with  equal  force  to  every 
article  of  raw  produce  that  we  import.  It  follows  that,  with 
regard  to  commodities  capable  of  being  produced  in  the  coun- 


*  Home  and  imported  wheat,  quality  for  quality,  selling  in  the  same  market  at 
ilic  same  price,  and  the  average  price  of  home  wiieat  being  governed  by  the  cost 
of  producing  the  most  costly  portion,  it  follows  tliat  this  cost  Avill  represent  to  us 
tlie  cost  of  the  imported  portijou  of  our  wheat  supply. 


GAIN  ON  FOREIGN  TRADE.  ■  421 

try,  no  less  than  with  regard  to  those  which  can  only  be  ob- 
tained from  foreign  sources,  the  data  for  ascertaining  the  quan- 
tum of  gain  accruing  to  us  from  foreign  trade  are  absolutely 
wanting.  We  know  the  nature  of  the  gain:  it  consists  in  ex- 
tending the  range  of  our  satisfactions,  and  in  cheapening  the 
cost  at  which  such  as  in  its  absence  would  not  be  beyond  our 
reach  are  obtained;  and  we  know  that  the  amount  which  it 
brings  to  us  under  each  of  these  categories  can  not  but  be  very 
great;  but  beyond  this  indefinite  and  vague  result  our  data  do 
not  enable  us  to  pass. 


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i^  WINCHELL'S  SKETCHES  OF  CREATION.  Skeichea  of  Creation :  a  Popular 
View  of  some  of  the  Grand  Conclusions  of  the  Sciences  in  reference  to  the  His- 
tory of  Malter  and  of  Life.  Together  with  a  Statement  of  the  Intimations  of 
Science  resi)ecting  the  Primordial  Condition  and  the  Ultimate  Destiny  of  the 
Earth  and  the  Solar  System.  By  Alexander  Winohell,  LL.D.,  Professor  of 
Geology,  Zoology,  and  Botany  in  the  University  of  Michigan,  and  Director  of  the 
State  Geological" Survey.     With  Illustrations.     r2mo,  Cloth,  $2  00. 

WHITE'S  MASSACRE  OF  ST.  BAL'TIIOI.OMKW.  The  Massacre  of  St.  Bartholo- 
mew: Preceded  by  a  History  of  ihe  Rt^ligious  Wars  in  the  Reign  of  Charles  IX. 
By  Henry  Wjiite,  M.A.     With  Jllustrations.     Svo,  Cloth,  $1  75. 

RECLUS'S  THK  EARTH.  The  Earth  :  a  Descriptive  History  of  the  Phenomena 
and  Life  of  the  Globe.  By  Ehbee  Kecu.uh.  Translated  by  the  late  B.  B.Wood- 
ward, and  Edited  by  Iloiiry  Woodward.  With  2:i4  Maps  and  Illustrations,  and 
23  Page  Maps  printed  in  Colors.     Svo,  Cloth,  $5  00. 

RECLUS'S  OCEAN.  The  Ocean,  Atmosphere,  and  Life.  Being  the  Second  Series 
of  a  Descriptive  Ilintory  of  the  Life  of  the  Globe.  By  FlLisitK  Re<:lus.  Pro- 
fusely Illustrated  with  250  Maps  or  Figures,  and  27  Maps  printed  in  Colors. 
Svo,  Cloth,  $0  00. 


Harper  &>  Brothers'  Valuable  atid  Interesting  Works.      3 

LOSSING'S  FIELD-BOOK  OF  THE  REVOLUTION.  Pictorial  Field-Book  of  the 
lievolutioii ;  or,  Illustrations,  by  Pun  and  Pencil,  of  the  History,  Bio^'rujjliy, 
Scenery,  Relics,  and  Traditions  of  the  War  for  Independence.  By  Bknson  j' 
L08SIN0.  '2  vols.,  Svo,  Cloth,  $U  00;  Sheep,  $15  00;  Half  Calf,  $18  00-  Full 
Turkey  Morocco,  $22  00. 

LOSSING'S  FIELD-BOOK  OF  THE  WAR  OF  1812.  Pictorial  Field-Book  of  the 
War  of  1S12;  or.  Illustrations,  by  Peu  and  Pencil,  of  the  History,  Bioi,'iapliy, 
Scenery,  Relics,  and  Traditions  of  the  Last  War  for  American  Independence.  By 
Bknso.v  J.  LossiNo.  With  several  hundred  Engravings  on  Wood,  by  Lossing  anil 
Barritt,  chiellv  from  Original  Sketches  by  the  Author.  1088  pages,  8vo,  Cloth, 
$T00;  Sheep,  $8  50;  Half  Calf,  $1000. 

ALFORD'S  GREEK  TESTAMENT.  The  Greek  Testament :  with  a  critically  revised 
Text;  a  Digest  of  Various  Readings;  Marginal  References  to  Verbal  and  Idio- 
matic Usage  ;  Prolegomena ;  and  a  Critical  and  Esegetical  Commentary.  For 
the  Use  of  Theological  Students  and  Ministers.  By  Hknry  Ai-foeb,  D.D.,  Deaii 
of  Canterbury.  Vol.  I.,  coutainiug  the  Four  Gospels.  944  pages,  Svo,  Cloth, 
$G  00  ;  Sheep,  $G  50. 

ABBOTT'S  FREDERICK  THE  GREAT.  The  History  of  Frederick  the  Second, 
called  Frederick  the  Great.     By  John  S.  C.  Auhott.    Elegantly  Illustrated.    Svo, 

Cloth,  $5  00. 

ABBOTT'S  HISTORY  OF  THE  FRENCH  REVOLUTION.  The  French  Revolu 
tion  of  1789,  as  viewed  in  the  Light  of  Republican  Institutions.  By  John  S.  C.  Ab- 
UOTT.    With  100  Engravings.    Svo,  Cloth,  $5  00. 

ABBOTT'S  NAPOLEON  BONAPARTE.  The  History  of  Napoleon  Bonaparte.  By 
JouN  S.  C.  AiiuoTT.  With  Maps,  Woodcuts,  and  Portraits  ou  Steel.  2  vols., 
Svo,  Cloth,  $10  00. 

ABBOTT'S  NAPOLEON  AT  ST.  HELENA ;  or,  Interesting  Anecdotes  and  Remark- 
able Conversations  of  the  Emperor  during  the  Five  and  a  Half  Years  of  his 
Captivity.  Collected  from  the  Memorials  of  Las  Casas,  O'Meara,  Moutholon, 
Antommarchi,  and  others.  By  John  S.  C.  Abbott.  With  Illustrations.  Svo, 
Cloth,  $5  00. 

ADDISON'S  COMPLETE  WORKS.  The  Works  of  Joseph  Addison,  embracing  the 
whole  of  the  "Spectator."    Complete  in  3  vols.,  Svo,  Cloth,  $6  00. 

ALCOCK'S  JAPAN.  The  Capital  of  the  Tycoon :  a  Narrative  of  a  Three  Years' 
Residence  in  Japan.  By  Sir  Rdtuekford  Alcook,  K.C.B.,  Her  Majesty's  Envoy 
Extraordinarv  and  Minister  Plenipotentiary  in  Japan.  With  Maps  and  Engravings. 
2  vols.,  12mo,"Cloth,  $3  50. 

l/  ALISON'S  HISTORY  OF  EUROPE.  Fikbt  Series  :  From  the  Commencement  of 
the  French  Revolution,  in  1TS9,  to  the  Restoration  of  the  Bourbons,  in  1815.  [In 
addition  to  the  Notes  on  Chapter  LXXVI.,  which  correct  the  errors  of  the 
original  work  concerning  the  United  States,  a  copious  Analytical  Index  has  been 
appended  to  this  American  edition. 1  Sf-cond  Skrif.s  :  From  the  Fall  of  Napoleon, 
in  1S15,  to  the  Accession  of  Louis  Napoleon,  in  1852.    8  vols.,  Svo,  Cloth,  $1C  00. 

V^  BALDWIN'S  PRE-HISTORIC  NATIONS.  Pre-Historic  Naticms  ;  or.  Inquiries  con- 
cerning some  of  the  Great  Peoples  and  Civilizations  of  Antiquity,  and  their 
Probable  Relation  to  a  still  Older  Civilization  of  the  Ethiopians  or  C'ushites  of 
Arabia.  Bv  John  D.  Baldwin,  Member  of  the  American  Oriental  Society. 
12mo,  Cloth"  $1  75. 

BARTH'S  NORTH  AND  CENTRAL  AFRICA.    Travels  and  Discoveries  in  North 

and  Central  Africa:  being  a  Journal  of  an  Expedition  undertaken  under  the 
Auspices  of  II.  B.  M.'s  Government,  in  the  Years  1S49-1S55.  By  Henry  Bartu, 
Ph.D.,  D.O.L.     Illustrated.     3  vols.,  Svo,  Cloth,  $12  00. 

HENRY  WARD  BEECHER'S  SERMONS.  Sermons  by  Henhv  Wart.  Bkeohek, 
Plymouth  Church,  Brooklyn.  Selected  from  Published  and  Unpublished  Dis- 
courses, and  Revised  bv  their  Author.  With  Steel  Portrait.  Complete  in  2  vols., 
Svo,  Cloth,  .$5  00. 

LYMAN  BEECHER'S  AUTOBIOGR.^PHY,  &c.  Autobiography,  Correspondence. 
&c.,  of  Lyman  Beecher,  D.D.  Edited  by  his  Son,  Cuari.es  Beeouer.  With  Three 
Steel  Portraits,  and  Engravings  on  Wood.     In  2  vols.,  12nio,  Cloth,  $5  00. 

BOSWELL'S  JOHNSON.  The  Life  of  Samuel  Johnson.  LL.D.  Including  a  Jouraey 
t^i  the  Hebrides.  By  James  Boswei.i.,  Esq.  A  New  Edition,  with  numerons 
Additions  and  Notes.  By  John  Wilson  Ckokeb,  LL.D.,  F.R.S.  Portrait  of 
Boswell.    2  vols.,  Svo.  Cloth,  $4  00. 

SARA  COLERIDGE'S    ME.MOIR   AND  LETTERS.    Memoir  and  Letters  of  Sara 

Coleridge.    Edited  by  her  Daughter.    With  Two  Portraits  ou  Steel.    Crowu  Svo, 

Cloth,  $2  50. 
SIIAKSPEARE.    The  Dramatic  Works  of  William  ^Miakspeare,  with  the  Corrections 

and  Illustrations  of  Dr.  Johnson   G.  Steevenb,  and  others.    Revised  by  Isaao 

Reei>.    Engravings.     6  vols..  Royal  12mo,  Cloth,  $9  00. 


4      Harper  cv  Brothers'  Valuable  and  Interesting  Works. 

i^  DRAPER'S  CIVIL  WAR.  History  of  the  American  Civil  War.  By  John  W.  Dra- 
per, M.D.,  LL.D.,  Professor  of  Chemistry  and  Physiology  in  the  University  of 
New  Yorlv.    lu  Three  Vols.    Svo,  Cloth,  $3  50  per  vol. 

DRAPER'S  INTELLECTUAL  DEVELOPMENT  OF  EUROPE.  A  History  of  the 
Intellectual  Development  of  Europe.  By  Joun  W.  Draper,  M.D.,  LL.D.,  Profess- 
or of  Chemistry  and  Physiology  in  the  University  of  New  York.    8vo,  Cloth,  $5  00, 

V  DRAPER'S  AMERICAN  CIVIL  POLICY.  Thoughts  on  the  Future  Civil  Policy  of 
America.  By  John  W.  Draper,  M.D.,  LL.D.,  Professor  of  Chemistry  and  Physiol' 
ogy  in  the  University  of  New  Y'ork.    Crown  Svo,  Cloth,  $2  5U. 

DU  CHAILLU'S  AFRICA.  Explorations  and  Adventures  in  Equatorial  Africa  with 
Accounts  of  the  Manners  and  Customs  of  the  People,  and  of  the  Chase  of  the  Go- 
rilla, the  Crocodile,  Leopard,  Elephant,  Hippopotamus,  and  other  Animals.  By 
Paul  I>.  Du  Chailuj.   Numerous  Illustrations.    Svo,  Cloth,  $5  00. 

SELLOWS'S  OLD  WORLD.  The  Old  World  in  its  New  Face :  Impressions  of  Eu- 
rope in  1S6T-1S6S.    By  Henev  W.  Bellows.    2  vols.,  12mo,  Cloth,  $3  50. 

BRODHEAD'S  HISTORY  OF  NEW  YORK.  History  of  the  State  of  New  Y'ork. 
By  John  Romeyn  BRomiEAi).     1609-1691.     2  vols.     Svo,  Cloth,  $3  00  per  vol. 

BROUGHAM'S  AUTOBIOGRAPHY.  Life  and  Times  of  Henry,  Lorp  Beougham. 
Written  by  Himself.    In  Three  Volumes.    12nio,  Cloth,  $2  00  jicr  vol. 

BULWER'S  PROSE  WORKS.  Miscellaneous  Prose  Works  of  Edward  Bulwer. 
Lord  Lytton.    2  vols.,  12mo,  Cloth,  $3  50. 

BULWER'S  HOR.\CE.  The  Odes  and  Epodes  of  Horace..  A  Metrical  Translation 
into  Enrjlish.  With  Introduction  and  Commentaries.  By  Lord  Lytton.  With 
Latin  Text  from  the  Editions  of  Orelli,  Macleane,  and  Yonge.    12mo,  Cloth,  $1  75. 

BULWER'S  KING  ARTHUR.  A  Poem.  By  Earl  Lytton.  New  Edition.  12mo, 
Cloth,  $1  75. 

BURNS'S  LIFE  AND  WORKS.  The  Life  and  Works  of  Robert  Bums.  Edited 
by  RouKRT  Chambers.    4  vols.,  12mo,  Cloth,  $6  00. 

REINDEER,  DOGS,  AND  SNOW-SHOES.  A  Journal  of  Siberian  Travel  and  Ez- 
plorations  made  i]i  the  Years  lS65-'67.  By  Richard  J.  Bdsh,  late  of  the  Russo- 
American  Telegraph  Expedition.    Illustrated.    Crown  Svo,  Cloth,  $3  00. 

CARLYLE'S  FREDERICK  THE  GREAT.  History  of  Friedrich  II.,  called  Frederick 
the  Great.  By  Tuomas  Caelyle.  Portraits,  Maps,  Plans.  &c.  6  vols.,  12rao, 
Cloth,  $12  00. 

>^  CARLYLE'S  FRENCH  REVOLUTION.  Historv  of  the  French  Revolution.  Newly 
Revised  by  the  Author,  with  Index,  &c.    2  vols.,  12mo,  Cloth,  $3  50. 

CARLYLE'S  OLIVER  CROMWELL.  Letters  and  Speeches  of  Oliver  CromweiL 
With  Elucidations  and  Connecting  Narrative.    2  vols.,  12mo,  Cloth,  $3  50. 

CHALMERS'S  POSTHUMOUS  WORKS.  The  Posthumous  Works  of  Dr.  Chalmers. 
Edited  bv  his  Sou-in-Law,  Rev.  William  Hanna,  LL.D.  Complete  in  0  vols., 
12ino,  Cloth,  $13  50. 

COLERIDGE'S  COMPLETE  WORKS.  The  Complete  Works  of  Samuel  Taylor 
Coleridge.  With  au  Introductory  Essay  upon  his  Philosophical  and  Theological 
Opinions.  Edited  by  Professor  Shedd.  Complete  in  Seven  Vols.  With  a  fine 
Portrait.    Small  Svo,  Cloth,  $10  .50. 

DOOLITTLE'S  CHINA.  Social  Life  of  the  Chinese:  with  some  Account  of  their  Re- 
ligious, Governmental,  Educational,  and  Business  Customs  and  Opinions.  With 
special  but  not  exclusive  Reference  to  Fiihcliau.  By  Rev.  Juktus  DociLnTLi:, 
Fourteen  Y'ears  Member  of  the  Fuhchau  Mission  of  the  American  Board.  Illus- 
trated with  more  than  150  characteristic  Engravings  on  Wood.  2  vols.,  12mo, 
Cloth,  $5  00. 

GIBBON'S  ROME.  Histoiy  of  the  Decline  and  Fall  of  the  Roman  Empire.  By  Ei>- 
wari)  GiuiiON.  With  Notes  by  Rev.  11.  H.  Milman  and  M.  Gi.izot.  A  new  cheap 
Editiiin.  To  which  is  added  a  complete  Index  of  the  whole  Work,  and  a  Portrait 
of  the  Author.     C  vols.,  Timo,  Cloth,  $'.»  00. 

UAZEN'S  SCHOOL  AND  ARMY  IN  GERMANY  AND  FRANCE.  The  School 
and  the  Army  in  Germany  and  France,  with  a  Diary  of  Siege  Life  at  Versailles. 
By  Brpvet  Major-Geiioial  W.  B.  Hazkn.  U.S.A..  Colonel  Sixth  Infantrv.  CrowF 
Svo,  Cloth,  $2  .')0. 

TYRRMAN'S  WESLEY.  The  Life  and  Times  of  the  Rev.  John  Wesley,  M.A. 
Founder  of  the  Methodists.  By  the  Rev.  Litkk  Tyicrman,  Author  of  "The  Life 
of  Kev.  Samuel  Wesley."     Portraits.     3  vols.,  Crown  Svo,  Clotli,  $T  50. 

VAMBfiUY'S  CKNTRAL  ASIA.  Travels  in  Central  Asia.  Being  the  Account  of  a 
Journey  from  Telieran  across  the  Turkoman  Desert,  on  the  EaHlerii  Shore  of  the 
Casi)ian,  to  Khiva,  Bokhara,  and  Samarcand,  peiformed  in  the  Year  1863.  By 
Akminius  VAmiiiIiiy,  Memiier  of  the  Hungarian  Academy  of  Pe^tli,  by  wliom  he 
was  sent  on  this  Scientific  Mission.    With  Map  and  Woodc"'**.    Svo,  Cloth,  $4  60. 


Harper  dv  Brothers'  Valuable  and  Interestifig  Works.      5 


THOMSON'S  LAND  AND  THE  BOOK.  The  Land  and  the  Book:  or,  Biblical 
Illustrations  diawn  from  tlie  Manners  and  Ciistomp,  the  Scenes  and  the  Scenery 
of  the  Holy  Land.  By  \V.  M.  Thomson,  D.  D.,  Twenty-five  Years  a  Missionary 
of  the  A.  B.  C.  F.  M.  in  Syria  and  Palestine.  With  two  elaborate  Mai)s  of  Pales- 
tine, an  accurate  Plan  of  Jenisalein,  and  several  hundred  Eiij,'ravin;.'s,  represeiitig 
the  Scenery,  Topography,  and  Productions  of  the  Holy  Land,  and  the  Costumes, 
Manners,  and  Habits  of  the  People.    2  large  l'2mo  vols.,  Cloth,  $5  00. 

DAVIS'S  CAltTHAGE.  Carthage  and  her  Remains  :  being  an  Account  of  the  Exca 
vations  audResearches  on  the  Site  of  the  Phoenician  Metropolis  in  Africa  and  other 
adjacent  Places.  Conducted  under  the  Auspices  of  Her  Majesty'.s  Government. 
Bv  Dr.  Davis,  F.R.G.S.  Profusely  Illustrated  with  Maps,  Woodcuts,  Chromo- 
Lithographs,  &c.    Svo,  Cloth,  $4  00. 

EDGEWORTH'S  (Miss)  NOVELS.   With  Engravings.     10  vols.,  12mo,  Cloth,  $15  Oft 

GROTE'S  HISTORY  OF  GREECE.    12  vols.,  12mo,  Cloth,  $18  00. 

HELPS'S  SPANISH  CONQUEST.  The  Spanish  Conquest  in  America,  and  its  Rela- 
tion to  the  Historv  of  Slavery  and  to  the  Government  of  Colonies.  By  Aetiiuk 
Helps.    4  vols.,  I'imo,  Cloth,  ,$6  00. 

HALE'S  (Mks.)  WOMAN'S  RECORD.  Woman's  Record :  or,  Biographical  Sketches 
of  all  Distinguished  Women,  from  the  Creation  to  the  Present  Time.  Arranged 
in  Four  Eras,  with  Selections  from  Female  Writers  of  each  Era.  By  Mrs.  Sakau 
JosEPiiA  Hale.    Illustrated  with  more  than  200  Portraits.    Svo,  Cloth,  $5  00. 

HALL'S  ARCTIC  RESEARCHES.  Arctic  Researches  and  Life  among  the  Esqui 
maux:  being  the  Narrative  of  an  Expedition  in  Search  of  Sir  John  Franklin,  in 
the  Years  ISOO,  IStJl,  and  1862.  By  Cuaeles  Fkancis  Hall.  Willi  Maps  and  100 
Illustrations.  The  Illustrations  are  from  Original  Drawings  by  Cluirlcs  l>arsons, 
Heury  L.  Stephens,  Solomon  Eytiuge,  W.  S.  L.  Jewett,  and  Granville  Perkins, 
after  Sketches  by  Captain  Hall.    Svo,  Cloth,  $5  00. 

HALLAM'S  CONSTITUTIONAL  HISTORY  OF  ENGLAND,  from  the  Accession  of 
Henry  VII.  to  the  Death  of  George  IL    Svo,  Cloth,  $2  00. 

a.\LLAM'S  LITERATURE.  Introduction  to  the  Literature  of  Europe  during  the 
Fifteenth,  Sixteenth,  and  Seventeenth  Centuries.  By  Hesey  Hallam.  2  vols., 
Svo,  Cloth,  $4  00. 

HALLAil'S  MIDDLE  AGES.  State  of  Europe  during  the  Middle  Ages.  By  Henky 
Hallam.     Svo,  Cloth,  $2  00. 

l^  IIILDRETH'S  HISTORY  OP  THE  UNITED  STATES.  First  Sekies  :  From  the 
First  Settlement  of  the  Country  to  the  Adoption  of  the  Federal  Constitution. 
Seooni>  Series:  F'roni  the  AdoiJtiou  of  the  Federal  Constitution  to  the  End  of 
the  Sixteenth  Congress.    G  vols.,  Svo,  Cloth,  $1S  00. 

i^  HUME'S  HISTORY  OF  ENGLAND.  History  of  Eagland,  from  the  Invasion  of  Ju- 
lius Ciesar  to  the  Abdication  of  James  II.,  ICSS.  By  David  Hume.  A  new  Edi- 
tion, with  the  Author's  last  Corrections  and  Improvements.  To  which  is  Prefix- 
ed a  short  Account  of  his  Life,  written  by  Himself.  With  a  Portrait  of  the  Au- 
thor.    6  vols.,  l'2mo.  Cloth,  $9  00. 

JAY'S  WORKS.  Complete  Works  of  Rev.  William  Jay :  comprising  his  Sermons, 
Family  Discourses,  Morning  and  Evening  Exercises  for  every  D:iy  in  the  Year, 
Family  Prayers,  »fcc.  Author's  enlarged  Edition,  revised.  3  vols.,  Svo,  Cloth, 
$6  00. 

V'  JEFFERSON'S  DOMESTIC  LIFE.  The  Domestic  Life  of  Thomas  Jefferson  :  com- 
piled from  Family  Letters  and  Reminiscences  by  his  Grcat-Granddanirhter, 
Sauah  N.  RaniiolVu.  With  Illustrations.  Crown  Svo,  Illuminated  Cloth,  Bev- 
eled Edges,  $2  50. 

JOHNSON'S  COMPLETE  WORKS.  The  Works  of  Samnel  Johnson,  LL.D.  With 
an  Essav  on  his  Life  and  Genius,  by  ARTiirE  Mrr.Piiv,  Esq.  Portrait  of  Johnsoa 
2  vols.,  Svo,  Cloth,  $4  00. 

y  KINGLAKE'S  CRIMEAN  WAR.  The  Invasion  of  the  Crimea,  and  an  Account  of 
its  Progress  down  to  the  Death  of  Lord  Raglan.  By  Alf.xanhee  William  King- 
lake.  "With  Maps  and  Plans.    Two  Vols,  ready.    i2ino.  Cloth,  $2  00  per  vol. 

EINGSLEY'S  WEST  INDIES.  At  Last:  A  Christmas  in  the  West  Indirs.  Bj 
Cuaules  Kingsley.    Illustrated,    12mo,  Cloth,  $1  50. 

SPEKE"S  AFRICA.  Journal  of  the  Discovery  of  the  Source  of  the  Nile.  By  Captaiv 
Jons  Hanmno  Si'ei;f.,  Captain  H.M.  Indian  Army,  Fellow  and  Gold  Medalist  ot 
the  Roy^il  Geographical  Society.  Hon.  Corresponding  Member  and  Gold  Medalist 
of  the  French  Geograijhical  Society,  &c.  With  Maps  and  Portraits  and  numerous 
Illustrations,  chiefly  from  DrawiriLTS  by  Captain  Grant.  Svo,  Cloth,  uniform  with 
Livingstone,  Barth,  Burton,  &c.,  $4  Oo! 

STRICKLAND'S  (Miss)  QUEENS  OF  SCOTLAND.  Lives  of  the  Quiens  of  Scot- 
land and  English  Princesses  connected  with  the  Regal  Successiou  if  Great  Brit- 
ain.   By  AoNES  Steicklam).    S  vols.,  12nio,  Cloth,  $12  00. 


o      Harper  cn  Brothers'  Valuable  and  Ifi  teres ii?ig  Works. 

KRUMMACHER'S  DAVID,  KING  OP  ISRAEL.  David,  the  King  of  Israel :  a  Por- 
trait drawn  from  Bible  History  and  the  Book  of  Psalms.  By  Feedeuiok  William 
KuuMMAWiEK,  D.D.,  Author  of  "Elijah  the  Tishbite,"  &c.  Transhilert  under  the 
express  Sanction  of  the  Author  by  the  Rev.  M.  G.  Easton,  M.A.  With  a  Letter 
from  Dr.  Krummacher  to  his  American  Readers,  and  a  Portrait.  12mo,  Cloth, 
$1  T5. 

LAMB'S  COiWPLETE  WORKS.  The  Works  of  Charles  Lamb.  Comprising  his  Let- 
ters, Poems,  Essays  of  Elia,  Essays  upon  Shakspeare,  Hogarth,  &c.,  and  a  Sketch 
of  his  Life,  with  the  Final  Memorials,  by  T.  Noon  Talfolkk.  Portrait.  2  vols., 
12mo,  Cloth,  $3  00. 

LIVINGSTONE'S  SOUTH  AFRICA.  Missionary  Travels  and  Researches  in  South 
Africa ;  including  a  Sketch  of  Sixteen  Years'  Residence  in  the  Interior  of  Africa, 
and  a  Journey  from  the  Cape  of  Good  Hope  to  Loando  on  the  West  Coast ;  thence 
across  the  Continent,  down  the  River  Zambesi,  to  the  Eastern  Ocean.  By  Davii> 
Livingstone,  LL.D.,  D.C.L.  With  Portrait,  Maps  by  Arrowsmith,  and  numerous 
Illustrations.     Svo,  Cloth,  $4  50. 

LIVINGSTONES'  ZAMBESI.  Narrative  of  an  Expedition  to  the  Zambesi  and  its 
Tributaries,  and  of  the  Discovery  of  the  Lakes  Shirwa  and  Nyassa.  1858-1864. 
By  David  and  Cuaeleb  Livingstone.  With  Map  and  Illustrations.  Svo,  Cloth, 
$5  00. 

M'CLINTOCK  &  STRONG'S  CYCLOPEDIA.  Cyclopedia  of  Biblical,  Theological, 
and  Ecclesiastical  Literature.  Prepared  by  the  Rev.  John  M'Clintock,  D.D., 
and  James  Strong,  S.T.D.  5  vols,  now  ready.  Royal  Svo.  Price  per  vol..  Cloth, 
.$5  00 ;  Sheep,  $6  00 ;  Half  Morocco,  $S  00. 

MARCY'S  ARMY  LIFE  ON  THE  BOHDER.  Thirty  Years  of  Army  Life  on  the 
Border.  Comprising  Descriptions  of  the  Indian  Nomads  of  the  Plains ;  Explo- 
rations of  New  Territory;  a  Trip  across  the  Rocky  Mountains  in  the  Winter; 
Descriptions  of  the  Habits  of  Different  Animals  found  in  the  West,  and  the  Meth- 
ods of  Hunting  them  ;  with  Incidents  in  the  Life  of  Different  Frontier  Men,  &c., 
&c.  By  Brevet  Brigadier-General  R.  B.  Marcy,  U.S.A.,  Author  of  "The  Prairie 
Traveller."    With  numerous  Illustrations.    Svo,  Cloth,  Beveled  Edges,  $3  00. 

MACAULAY'S  HISTORY  OF  ENGLAND.  The  History  of  England  from  the  Ac- 
cession of  James  II.  By  Thomas  Baisington  Ma<;aulay.  With  an  Original  Por- 
trait of  the  Author.     5  vols.,  Svo,  Cloth,  $10  00 ;  12mo,  Cloth,  $7  50. 

MOSHEIM'S  ECCLESIASTICAL  HISTORY,  Ancient  and  Modern  ;  in  which  the 
Rise,  Progress,  and  Variation  of  Church  Power  are  considered  in  their  Connec- 
tion withlhe  State  of  Learning  and  Philosophy,  and  the  Political  History  of  Eu- 
rope durhig  that  Period.  Translated,  with  Notes,  &c.,  by  A.  Maoi.aine,  D.D. 
A  new  Edition,  continued  to  1S26,  by  C.  Coote,  LL.D.    2  vols.,  Svo,  Cloth,  $4  00. 

NEVH'S'S  CHINA.  China  and  the  Chinese :  a  General  Description  of  the  Country 
and  its  Inhabitants ;  its  Civlli/atiou  and  Form  of  Government ;  its  Rolisrious  and 
Social  Institutions ;  its  Intercourse  with  other  Nations ;  and  its  Present  Condition 
and  Prospects.  By  the  Rev.  John  L.  Nevics,  Ten  Years  a  Missionary  in  Cliina. 
With  a  IVLip  and  Illustration*.    12mo,  Cloth,  $1  75. 

ITHB  DESERT  OF  THE  EXODUS.  Journeys  on  Foot  in  the  Wilderness  of  the 
Forty  Years'  Wanderings  ;  undertaken  in  connection  with  the  Ordnance  Survey 
of  Sinai  and  the  Palestine  Exploration  Fund.  By  E.  H.  Palmek,  M.A.,  Lord 
Almoner's  Professor  of  Arabic,  and  Fellow  of  St.  John's  College,  Cambridge. 
With  Maps  and  numerous  Illustrations  from  Photographs  and  Drawings  taken 
on  the  spot  bv  the  Sinai  Survey  Expedition  and  C.  F.  Tyrwhitt  Drake.  Crown 
Svo,  Cloth,  $3  00. 

OLIPH  VNT'S  CHINA  AND  JAPAN.  Narrative  of  the  Earl  of  Elgin's  Mission  to 
China  and  Japan,  in  the  Years  1S57,  '5S,  '59.  By  Laurence  Oi.h-iiant,  Private 
Secretary  to  Lorti  Elgin.    Illustrations.    Svo,  Cloth,  $3  50. 

DLIPHANT'S  (Mrs.')  LIFE  OF  EDWARD  IR\^NG.  The  Life  of  Edward  Irving, 
Ministerof  the  National  Scotch  Church,  Londcm.  Illustrated  by  his  Journals  and 
Correspondence.    By  Mrs.  Oi.iphant.     Portrait.    Svo,  Cloth,  $3  .50. 

^^AWLINSON'S  MANUAL  OF  ANCIENT  HISTORY.  A  Manual  of  Ancient  His- 
torv,  from  the  Earliest  Times  to  the  Fall  of  the  Western  Empire.  Comprising 
the  ilistory  of  Chaldaea,  Assyria,  Media,  Babylonia,  Lydia,  Phoenicia,  Syria,  Ju- 
da-a  E"yi)t,  Carthage,  Persia,  Greece,  Macedonia,  Parthia,  and  Rome.  By 
Gi'.oR<;irRA\vLiNSON,  M.A.,  Camden  Professor  of  Ancient  Ilistory  iu  the  Univer- 
sity of  Oxford.     12mo,  Cloth,  $2  50. 

SMILES'S  LIFK  OF  THE  STKPHRNSONS.  The  Life  of  George  Stephenson,  and 
of  his  Son,  Robert  Stephenson  ;  comprising,  also,  a  History  of  the  Invention  and 
IntrodiKlioii  of  the  Railway  Locomotive.  By  Samcel  Smiles,  Author  of  "Self- 
Help,"  &c.     With  Steel  Portraits  and  numerous  Illustrations.    Svo,  Cloth,  $3  00. 

SMILES'S  HISTORY  OF  THE  IIIKJUENOT.*!.  Thenugueuots:  their  Settlements, 
Chiirches,  and  Industries  in  England  and  Ireland.  By  Samuel  Smiles.  With  au 
Appendix  relating  to  the  Ilugu'>uots  in  America.    Crown  Svo,  Cloth,  $2  00. 


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